June 7, 2019 / 7:30 PM / 2 months ago

TREASURIES-Yields sag as weak U.S. jobs data fuels Fed rate cut talk

    * U.S. 10-year yields hit lowest since September 2017
    * End to global trade tension remains elusive
    * Futures imply traders see Fed cutting rates 75 bps by
year-end  

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, June 7 (Reuters) - U.S. Treasury yields tumbled on
Friday, with 10-year yields hitting their lowest since September
2017 as domestic employers hired far fewer workers than expected
in May, raising bets the Federal Reserve would lower interest
rates.
    Analysts blamed the pullback in hiring on escalating trade
tensions between the United States and its trading partners.
    The U.S. Labor Department said employers added 75,000
workers last month, well below the 185,000 projected by
economists polled by Reuters and a downwardly revised 224,000 in
April.
    "The number is quite startling," said Mike Lorizio, head of
Treasuries trading at Manulife Asset Management in Boston. "It
might still be an anomaly. There is still a decent amount of
strength in the labor market."
    The weak payroll reading sparked buying in U.S. government
debt, fed by expectations the Federal Reserve might lower
short-term rates 75 basis points before year-end.
    A couple of top Wall Street firms now expect the Fed may
lower rates by 50 basis points at its July policy meeting.  
    "The Fed won’t react to one report, even one as important as
payrolls," Sal Guatieri, senior economist at BMO Capital
Markets, wrote in a research note. "But given the broadening
trade war, easing labour cost pressures (despite a tight labour
market) and already-low inflation, it won’t take much more
weakness in employment, in particular, to spur a rate cut."
    This week, a number of Fed officials including Chairman
Jerome Powell hinted they were open to lower interest rates to
preserve the U.S. expansion, which would be the longest in
history by this summer.
    Trade tensions remained high. The White House said its 5%
tariff on Mexican imports was on track for Monday.
    Chinese President Xi Jinping called for world powers to
protect the global multilateral trade system.
    In late U.S. trading, the yields on U.S. 10-year Treasury
notes were 3.70 basis points lower at 2.086%. They touched
2.053% after the payrolls report, their lowest since September
2017.
    Two-year yields were 3.20 basis points lower at
1.849%. They fell to 1.775%, which was just above their lowest
since December 2017.
    Most of the yield curve steepened for a second week, as
short-dated yields have tumbled on expectations of multiple rate
cuts from the Fed in the next 12 months, analysts said.
    The spread between two-year and 10-year yields
 grew nearly 3 basis point on the week to end at
over 23 basis points. It touched nearly 31 basis points on
Wednesday, its widest in seven months.
    
    Friday, June 7, at 1517 EDT (1917 GMT):
                               Price                  
 US T BONDS SEP9               154-18/32    33/32     
 10YR TNotes SEP9              127-64/256   10/32     
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2.23         2.2795    -0.033
 Six-month bills               2.1025       2.1541    -0.069
 Two-year note                 100-138/256  1.8453    -0.036
 Three-year note               100-226/256  1.814     -0.031
 Five-year note                100-186/256  1.8463    -0.037
 Seven-year note               101-8/256    1.966     -0.038
 10-year note                  102-156/256  2.0827    -0.040
 30-year bond                  106-72/256   2.5727    -0.048
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       23.60        -0.40     
 30-year vs 5-year yield       72.60        -0.55     
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         6.75         2.00    
 spread                                               
 U.S. 3-year dollar swap         4.25         1.50    
 spread                                               
 U.S. 5-year dollar swap         3.00         1.00    
 spread                                               
 U.S. 10-year dollar swap       -1.25         0.50    
 spread                                               
 U.S. 30-year dollar swap      -26.50         0.75    
 spread                                               
    

    
 (Reporting by Richard Leong
Graphic by Matthew Weber; Editing by David Gregorio and Tom
Brown)
  
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