May 3, 2018 / 7:19 PM / 2 months ago

TREASURIES-Yields slip in line with Europe, ahead of U.S. jobs data

    * U.S. data generally positive overall
    * U.S. yields impacted by those in Europe
    * Traders unlikely to make big bets ahead of payrolls.

 (Adds comments, updates prices in text, table)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, May 3 (Reuters) - U.S. Treasury yields slid on
Thursday, pressured by falls in Europe after a surprising drop
in euro zone inflation that could constrain the European Central
Bank's efforts to unwind its monetary stimulus this year.
    Benchmark U.S. 10-year yields dropped to two-week lows,
while those on two-year notes fell to a more than one-week
trough after hitting a 9-1/2-year peak the previous session.
    Thursday's generally positive U.S. economic data lifted
yields, but that did not last. Analysts said investors were
unlikely to make big bets ahead of Friday's U.S. non-farm
payrolls report.
    "Today's moves were generally overseas-driven," said Justin
Lederer, Treasury analyst at Cantor Fitzgerald in New York. "We
had weaker inflation in Europe and the impact spilled over to
Treasuries."
    Data showed euro zone inflation fell to 1.2 percent in
April, according to the Eurostat flash estimate. Economists
polled by Reuters had expected it to be unchanged from 1.3
percent in March.
    That pushed French and German
10-year government bond yields to 2-week lows after the data.

    Natascha Gewaltig, director of European economics at Action
Economics, said the ECB remains on track to phase out its
quantitative easing by the end of 2018, but rate hikes next year
have been pushed back.
    U.S. yields edged up from lows after the release of U.S.
data.
    Reports showed the U.S. trade deficit narrowed sharply in
March, as exports hit a record high with a surge in deliveries
of commercial aircraft and soybeans. 
    Other data on Thursday showed a modest increase in initial
jobless claims last week, with the number of Americans receiving
unemployment aid falling to its lowest level since 1973.

    In afternoon trading, U.S. benchmark 10-year yields fell to
2.947 percent from 2.964 percent late on Wednesday.
    U.S. 30-year bonds slid to 3.122 percent, from
Wednesday's 3.134 percent.
    U.S. two-year yields were also down at 2.484
percent, from 2.496 percent on Wednesday. 
    Yields fell after Wednesday's quarterly refunding
announcement from the U.S. Treasury showed an increase in the
supply of government debt issuance.
    Overall, analysts said the prospect of higher debt supply
should keep U.S. yields elevated.
    Analysts expect U.S. nonfarm payrolls data due on Friday to
show an addition of 192,000 jobs, according to a Reuters poll.

    "A sell-off back to recent high yields for 5s and 10s is
possible (if) average hourly earnings above hit 0.3 percent or
unemployment (gets) close to 3.8 percent," said Jim Vogel,
interest rates strategist, at FTN Financial in Memphis,
Tennessee. 
    
    Thursday, May 3 at 1458 EDT (1858 GMT):
                               Price                  
 US T BONDS JUN8               143-16/32    0-8/32    
 10YR TNotes JUN8              119-168/256  0-36/256  
                               Price        Current   Net
                                            Yield     Change
                                            (pct)     (bps)
 Three-month bills             1.7975       1.8307    0.008
 Six-month bills               1.975        2.0225    -0.006
 Two-year note                 99-202/256   2.4842    -0.012
 Three-year note               99-76/256    2.6241    -0.014
 Five-year note                99-216/256   2.7837    -0.018
 Seven-year note               99-216/256   2.8998    -0.020
 10-year note                  98-84/256    2.9477    -0.016
 30-year bond                  97-160/256   3.1229    -0.011
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        26.25        -0.50    
 spread                                               
 U.S. 3-year dollar swap        21.25        -0.50    
 spread                                               
 U.S. 5-year dollar swap        12.25        -0.25    
 spread                                               
 U.S. 10-year dollar swap        3.00         0.00    
 spread                                               
 U.S. 30-year dollar swap      -11.75         0.00    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss
Editing by Nick Zieminski and Richard Chang)
  
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