March 2, 2018 / 3:28 PM / 6 months ago

TREASURIES-U.S. yields rise after BOJ's Kuroda mulls end to easy policy

    * BOJ may consider exit strategy if inflation goal is
    * Safe-haven bond holdings pared in wake of Trump's tariff
    * Traders eye weekend elections in Germany, Italy

    By Richard Leong
    NEW YORK, March 2 (Reuters) - U.S. Treasury yields rose on
Friday, with the 10-year yield bouncing back from a three-week
low as the Bank of Japan's chief hinted at a possible exit from
its ultra-easy policies if inflation hits its target in its
fiscal 2019.
    The bond market also came under pressure as investors scaled
back their safe-haven bond holdings tied to President Donald
Trump's plan for stiff tariffs on steel and aluminum, which
raised fears of a trade war and surging costs for consumers.

    "Markets don't want trade wars. The markets are pricing in
that risk," said Boris Rjavinski, senior rate strategist at
Wells Fargo Securities in New York. "The news from Japan also
played a role."
    If the BOJ were to move away from its crisis-mode measures,
it would follow in the footsteps of the U.S. Federal Reserve and
other major central banks. 
    "The BOJ's board members expect that prices will reach 2
percent around fiscal 2019. If this happens, there's no doubt
that we will consider and debate an exit," Bank of Japan
Governor Haruhiko Kuroda told parliament.
    At 10:18 a.m. (1518 GMT), the benchmark 10-year Treasury
yield  was 2.837 percent, up 3.5 basis points from
late on Thursday. It touched a three-week low of 2.793 percent
earlier on Friday.
    The two-year yield hit a two-week low of 2.197
percent before moving to 2.234 percent, up 2.8 basis points from
Thursday, according to Reuters data.
    The spread between five-year and 30-year yields
 was 51.0 basis points, wider than the 50.2 basis
points late on Thursday, Tradeweb data showed.
    Bond yields had fallen late Thursday through overnight
trading on jitters about rising trade tension from Trump's
tariffs on imported steel and aluminum before the BOJ news
reversed their drop. Some analysts downplayed the economic risk
from an all-out trade war.
    "We expect it would make continued noise for markets," said
Robert Tipp, chief market strategist at PGIM Fixed Income in
Newark, New Jersey. "I think it's not going to make a dent in
the overall economic picture."
    Meanwhile, traders await the outcomes of elections in
Germany and Italy on Sunday.
    Pollsters forecast a hung parliament in Italy, with the
anti-establishment 5-Star Movement to be the biggest single
party. In Germany, Chancellor Angela Merkel's ruling
conservative party faces stiff resistance from the Social
Democrats (SPD) to be part of an alliance.

    Election results that produce weak governing bodies or ones
with anti-EU bias may spur safe-haven demand for Treasuries,
analysts said.
March 2 Friday 10:22AM New York / 1522 GMT
 US T BONDS MAR8               144-26/32    -17/32    
 10YR TNotes MAR8              120-240/256  -9/32     
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.605        1.6336    0.005
 Six-month bills               1.8075       1.8491    0.010
 Two-year note                 100-8/256    2.2337    0.028
 Three-year note               99-160/256   2.3822    0.030
 Five-year note                100-22/256   2.6065    0.033
 Seven-year note               99-228/256   2.7673    0.038
 10-year note                  99-64/256    2.8369    0.035
 30-year bond                  97-180/256   3.1185    0.033
         YIELD CURVE           Last (bps)   Net       
 10-year vs 2-year yield       60.10        0.70      
 30-year vs 5-year yield       51.20        1.00      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        24.25        -1.75    
 U.S. 3-year dollar swap        20.50        -1.75    
 U.S. 5-year dollar swap         9.00        -0.75    
 U.S. 10-year dollar swap        0.75         0.00    
 U.S. 30-year dollar swap      -19.00         0.00    

 (Reporting by Richard Leong; Editing by Jonathan Oatis)
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