January 16, 2018 / 4:04 PM / a month ago

TREASURIES-U.S. yields fall, tracking European bonds

    By Gertrude Chavez-Dreyfuss
    NEW YORK, Jan 16 (Reuters) - U.S. long-dated Treasury yields
fell on Tuesday along with those of European bonds, after a
report said the European Central Bank was not quite ready to put
away its bond-buying scheme at next week's meeting.
    U.S. yields have dropped in three of the last four sessions.
   
    "There's a pullback in (German) bund yields and we're seeing
a little bit of that spill over to the U.S.," said Subadra
Rajappa, head of U.S. rates strategy, at Societe Generale in New
York.
    Long-dated U.S. yields, which move inversely to prices,
dropped to one-week lows, while those on 2-year notes rose after
hitting a more than nine-year high last Friday.
    A Reuters report on Tuesday suggested the ECB was unlikely
to ditch a pledge to keep buying bonds at next week's meeting as
policymakers need more time to assess the outlook for the
economy and the euro. Yields on European bonds fell
across the board after that report.
    Also on Tuesday, the U.S. yield curve resumed its flattening
trend after steepening most of last week, with the spread
between 5- and 30-year maturities sinking to
48.70 basis points, its lowest in more than a week, according to
Reuters data.
    The spread between yields of short- and long-dated
maturities has compressed as investors price in the expectation
that the Federal Reserve will continue to raise U.S. overnight
interest rates, even as long-term inflation expectations have
remained low. Global demand for yield also has supported
longer-dated debt.
    "The Fed is going to soldier on with its tightening campaign
as long as there isn't a material breakdown in the real data,"
said BMO Capital Markets in a research note.
    The rate futures market has priced in a more than 70 percent
chance the Fed will raise interest rates at the March meeting,
according to the CME's FedWatch. 
    In late morning trading, the benchmark 10-year Treasury
yield slipped to 2.538 percent, from 2.552 percent
late on Friday.
    U.S. bond markets were closed on Monday due to the
observance of Martin Luther King Jr day. 
    U.S. 30-year bond yields were down at 2.840
percent from Friday's 2.853 percent. 
    U.S. two-year yields, meanwhile, rose to 2.018
percent, from 2.002 percent on Friday. The U.S. two-year notes
is the maturity most sensitive to rate hike expectations.

      January 16 Tuesday 10:44AM New York / 1544 GMT
                               Price                  
 US T BONDS MAR8               150-24/32    0-8/32    
 10YR TNotes MAR8              123-12/256   0-28/256  
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.4325       1.4573    0.012
 Six-month bills               1.5725       1.6067    0.005
 Two-year note                 99-188/256   2.0142    0.012
 Three-year note               99-164/256   2.1245    0.009
 Five-year note                98-250/256   2.3449    -0.003
 Seven-year note               98-156/256   2.4688    -0.012
 10-year note                  97-128/256   2.5389    -0.013
 30-year bond                  98-60/256    2.838     -0.015
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        19.75       ******    
 spread                                               
 U.S. 3-year dollar swap        18.50       ******    
 spread                                               
 U.S. 5-year dollar swap         5.50       ******    
 spread                                               
 U.S. 10-year dollar swap       -0.50       ******    
 spread                                               
 U.S. 30-year dollar swap      -19.00         0.75    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by David
Gregorio)
  
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