December 31, 2018 / 7:41 PM / 3 months ago

TREASURIES-Volume low, yield curve ends year flattest since 2007

 (Recasts, adds new analyst comment, updates yields)
    By Kate Duguid
    NEW YORK, Dec 31 (Reuters) - U.S. Treasuries edged higher in
a quiet session on Monday, ending a year in which the yield
curve reached its flattest since 2007.
    With markets shutting early on New Year's Eve and many
investors out of the office, trading volume was well below
average and yields stayed within a narrow range across
maturities.
    Any trades were related to positioning for the end-of-month
close, said Lou Brien, market strategist at DRW Trading in
Chicago.
    Yields have been falling for two months on a flight to
lower-risk investments as stock prices slid in volatile trading.
But yields remained up for the year, particularly in
shorter-dated maturities, as the U.S. Federal Reserve raised
interest rates four times in the last 12 months.
    The rate hikes led to a flatter yield curve as returns at
the short end rose faster than those of longer-dated maturities.
The spread between two- and 10-year note yields,
the most common measure of the yield curve, was its flattest
since 2007, ending the year out around 18.8 basis points.
    This winter's stock market gyrations have lowered investors'
expectations of rate hikes in 2019. The probability of a 25
basis point rate hike in either May, June or July of 2019 has
fallen from around 40 percent to around 15 percent today,
according to CME Group's FedWatch tool. 
    Many investors expect the yield curve to keep flattening,
with a decline in the 10-year yield - which reflects the
market's view of the U.S. economy's health - as Wall Street's
decade-long bull run loses steam.
    In studies by Piper Jaffray & Co, analysts noted that once
the spread between two- and 10-year yields reaches between 10
and 15 basis points, there is a 50 percent chance of a
recession.
    "What that says to us is that if the Fed keeps moving, we
should see the curve continue to flatten, kind of locking in a
recession," said Justin Hoogendoorn, head of fixed income
strategy at Piper Jaffray & Co. "If the Fed does slow or pause
we could start to see a little more steepness in the market and
then we wouldn't necessarily be locking in a recession." 
    
      December 31 Monday 1:53PM New York / 1853 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2.33         2.3754    -0.008
 Six-month bills               2.425        2.4882    0.007
 Two-year note                 100-4/256    2.4919    -0.044
 Three-year note               100-120/256  2.4591    -0.058
 Five-year note                100-140/256  2.5078    -0.063
 Seven-year note               100-66/256   2.5845    -0.063
 10-year note                  103-208/256  2.6824    -0.056
 30-year bond                  107-4/256    3.0168    -0.027
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        16.75         1.75    
 spread                                               
 U.S. 3-year dollar swap        13.25         1.75    
 spread                                               
 U.S. 5-year dollar swap         6.25         1.50    
 spread                                               
 U.S. 10-year dollar swap        2.25         0.50    
 spread                                               
 U.S. 30-year dollar swap      -18.25        -0.50    
 spread                                               
 

    

 (Reporting by Kate Duguid; Editing by David Gregorio and
Richard Chang)
  
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below