June 3, 2019 / 1:58 PM / in 3 months

TREASURIES-U.S. bonds market parties on after best month since 2011

    * U.S. Treasuries produce highest monthly return since Aug
    * U.S. 2-year yield set for biggest 2-day fall since 2008
    * Futures imply traders see Fed cutting interest rates in

 (Updates market action, adds quote)
    By Sujata Rao and Richard Leong
    June 3 (Reuters) - U.S. Treasury yields fell to their lowest
levels since September 2017 on Monday as investors piled more
cash into low-risk debt to seek protection from market
volatility due to growing trade conflicts between the United
States and its trade partners.
    The near $16-trillion sector produced a total return of
2.35% in May, its strongest monthly showing since August 2011. 
    Long-dated Treasuries generated a stellar 6.7% return, their
juiciest performance since January 2015, as the safe-haven
market rally knocked 10-year yields some 36 basis points lower
last month.
    Treasuries were among the top assets in the world in May.
They handily beat stocks but trailed the yen somewhat. 
    "The trade war is taking another leg higher which is 
negative in terms of global growth, demand, confidence and
inflation and is also injecting a healthy dose of risk-off,
which is all conspiring to push U.S. yields lower," Richard
McGuire, head of rates strategy at Rabobank, said.
    At 9:37 a.m. (1337 GMT), benchmark 10-year Treasury yields
 fell 2.40 basis points at 2.118% after hitting
2.071%, their lowest level since September 2017.
    Two-year yields declined 5.00 basis points at
1.894%. They touched 1.842% earlier Monday, which their lowest
since September 2017.
    Two-year notes were on track for their biggest two-day fall
since the 2008 global financial crisis.
    Shorter-dated yields have tumbled on a growing conviction
that the U.S. Federal Reserve will cut interest rates more than
once before year-end to stave off recession as the trade war
shows signs of escalating and enveloping more countries.        
    In what is widely accepted as a recession signal, 10-year
yields have been firmly below three-month note yields
. The inversion in the yield curve has become more
pronounced and steepened at one point on Monday at 27 basis
points, the deepest since 2007.
    Interest rate futures traders are now pricing in a 55%
chance of a rate cut at the Fed’s July 30-31 meeting, up from
18% a week ago, according to the CME Group’s FedWatch Tool. The
chance of a cut by December is seen at 97%.  
June 3 Monday 9:33AM New York / 1333 GMT
 US T BONDS SEP9               154-5/32     14/32     
 10YR TNotes SEP9              126-244/256  7/32      
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             2.29         2.3346    -0.019
 Six-month bills               2.2375       2.3002    -0.055
 Two-year note                 100-115/256  1.8938    -0.050
 Three-year note               100-200/256  1.8511    -0.044
 Five-year note                100-128/256  1.8945    -0.035
 Seven-year note               100-196/256  2.007     -0.026
 10-year note                  102-76/256   2.1176    -0.024
 30-year bond                  106-120/256  2.5642    -0.019
         YIELD CURVE           Last (bps)   Net       
 10-year vs 2-year yield       22.20        1.55      
 30-year vs 5-year yield       66.90        1.45      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap         5.00         0.50    
 U.S. 3-year dollar swap         2.25         0.50    
 U.S. 5-year dollar swap         0.25         0.50    
 U.S. 10-year dollar swap       -4.00         1.00    
 U.S. 30-year dollar swap      -27.00         1.00    

 (Reporting by Sujata Rao and Virginia Furness in LONDON 
Editing by Dhara Ranasinghe and Nick Zieminski)
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