January 22, 2018 / 8:59 PM / 3 months ago

TREASURIES-U.S. yields rise as Senate reaches deal to end shutdown

 (Recasts, updates yields, table, adds quote)
    * U.S. lawmakers strike deal to end government shutdown
    * 10-year yields hit highest since July 2014
    * 2-year yields hit highest since September 2008

    By Kate Duguid
    NEW YORK, Jan 22 (Reuters) - Treasury yields rose on Monday
after U.S. lawmakers reached a deal to reopen the federal
government, three days into the shutdown.
    Yields recovered earlier intraday losses, rising to just
below the multi-year highs set in early trading on Monday. The
morning sell-off saw yields on the 10-year note hit
three-and-a-half-year highs, while yields on the two-year note
 hit nine-year highs.
    Though highs were set, the market's movement on Monday was
fairly muted. In spite of the volatile political situation, the
margin between the two-year yield's low and high points was just
2 basis points. For the 10-year it was 4 basis points. 
    "The market is taking it in stride. They think it's a little
hiccup in daily government operations. The bigger picture of
(the economy) and inflation is what will continue to drive
markets," said Sean Simko, head of global fixed income
management at SEI Investments Co in Oaks, Pennsylvania. 
    U.S. senators voted to move forward on legislation that
would reopen the federal government until Feb. 8, ending a
three-day standoff between Democrats and President Donald
Trump's Republicans over immigration and border security.

    Prior to the announcement of the deal, analysts largely
dismissed the U.S. government shutdown, saying it would not have
a significant long-term impact on the world's largest economy.
Their explanations for Monday's early highs included momentum
from a significant sell-off on Friday, and weakness in European
equities overnight.
    The market had "a little bit of a bounce from last Friday,
which was a pretty ugly day," said Ward McCarthy, chief
financial economist at Jefferies LLC in New York.
    Benchmark government yields hit 2.672 percent,
the highest since July 2014, and was 2.665 percent at 2:22 p.m.
ET (1922 GMT) above its last close at 2.639 percent. The 10-year
maturity on Friday broke through its 2017 high of 2.64 percent,
a key technical support level. 
    Reaching that key technical level means that yields at or
below 2.64 percent may indicate the market will hold those rates
in the near term. If they move consistently above that level,
the market will probably test the next highest mark of 2.75
percent.
    This week's schedule of data releases is light until Friday,
when the first estimate of U.S. fourth-quarter gross domestic
product will be reported.
    In afternoon trading, the U.S. 2-year note yield
was at 2.073 percent, after hitting 2.082 percent earlier in the
day, its highest since September 2008.
    
    January 22 Monday 2:26PM New York / 1926 GMT
                               Price                  
 US T BONDS MAR8               148-22/32    -0-10/32  
 10YR TNotes MAR8              122-24/256   -0-48/25  
                                            6         
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.405        1.4293    -0.005
 Six-month bills               1.59         1.6248    0.000
 Two-year note                 99-160/256   2.0733    0.012
 Three-year note               99-102/256   2.2098    0.020
 Five-year note                98-116/256   2.4595    0.023
 Seven-year note               97-216/256   2.5915    0.023
 10-year note                  96-116/256   2.663     0.024
 30-year bond                  96-120/256   2.9283    0.016
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        20.00         0.25    
 spread                                               
 U.S. 3-year dollar swap        19.50         0.25    
 spread                                               
 U.S. 5-year dollar swap         7.25        -0.25    
 spread                                               
 U.S. 10-year dollar swap        4.25        -1.25    
 spread                                               
 U.S. 30-year dollar swap      -11.50        -0.75    
 spread                                               
 
 (Reporting by Kate Duguid; Editing by Frances Kerry and Chizu
Nomiyama)
  
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