December 1, 2016 / 8:40 PM / 8 months ago

TREASURIES-Yields extend surge as oil, Trump boost inflation bets

5 Min Read

* 10-yr yields hit roughly 1-1/2-year high of 2.492 pct
    * 30-yr yields hit 16-1/2-month high of 3.156 pct
    * Trump policies, rally in oil prices boost inflation
expectations
    * Upbeat U.S. manufacturing data contributes to higher
yields

 (Updates prices, adds comment)
    By Sam Forgione
    NEW YORK, Dec 1 (Reuters) - U.S. Treasury yields surged on
Thursday with benchmark yields touching their highest levels in
roughly a year and a half on expectations that gains in oil
prices and U.S. President-elect Donald Trump's policies would
fuel higher inflation.
    Brent crude prices built on Wednesday's gains with a more
than 4 percent jump a day after OPEC and Russia agreed to
restrict output. The rally in crude, along with expectations
that Trump will enact policies that increase spending and debt
as well as spur growth and inflation, pushed Treasury yields
higher. 
    Inflation erodes bond prices, with 10- and 30-year
Treasuries most vulnerable. A stronger-than-expected U.S.
manufacturing reading for November and a rise in U.S.
construction spending in October also boosted
yields.  
    "Investors are building the possibility of inflation into
the Treasury curve," said Ellis Phifer, market strategist at
Raymond James in Memphis, Tennessee.
    Benchmark 10-year yields hit 2.492 percent, their highest
level since June 11, 2015, while 30-year yields hit a 16-1/2
month high of 3.156 percent. U.S. five-year yields hit a more
than 5-1/2-year high of 1.935 percent, while seven-year yields
hit a more than two-year high of 2.295 percent. 
    U.S. two-year yields hit just a six-day high of 1.167
percent, while three-year yields hit their highest since
mid-February 2011 at 1.469 percent. 
    Comments on Wednesday from Steven Mnuchin, Trump's pick to
lead the U.S. Treasury, on introducing a longer-maturity bond
added to expectations that long-end rates would increase
further, said Kim Rupert, managing director for fixed income at
Action Economics in San Francisco.
    The continued surge in yields came after U.S. Treasuries
posted a negative 2.7 percent return in November to mark their
worst performance since January 2009, according to Bloomberg
Barclays index data, while the Bloomberg Barclays U.S. Aggregate
Bond Index posted a negative 2.4 percent return to mark its
worst monthly showing in at least 10 years.
    Traders awaited U.S. monthly employment data due on Friday.
Economists polled by Reuters expect U.S. employers added 175,000
jobs last month. 
    U.S. 10-year Treasuries were last down 21/32 in
price to yield 2.4445 percent, up about eight basis points from
its yield late on Wednesday. U.S. 30-year Treasuries 
were last down 1-19/32 in price to yield 3.1027 percent, also up
about eight basis points from late Wednesday's yield. Prices on
30-year Treasuries briefly fell more than two full points.
    
    December 1 Thursday 3:25PM New York / 2025 GMT
                               Price                  
 US T BONDS MAR7               149-13/32    -1-28/32  
 10YR TNotes MAR7              123-248/256  -0-140/2  
                                            56        
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.4675       0.4745    -0.011
 Six-month bills               0.5975       0.6076    -0.002
 Two-year note                 99-180/256   1.151     0.036
 Three-year note               98-188/256   1.4392    0.049
 Five-year note                99-80/256    1.8949    0.061
 Seven-year note               99-50/256    2.25      0.072
 10-year note                  96-24/256    2.4445    0.077
 30-year bond                  95-160/256   3.1002    0.082
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        19.50        -0.75    
 spread                                               
 U.S. 3-year dollar swap        11.50        -1.00    
 spread                                               
 U.S. 5-year dollar swap        -2.75         0.00    
 spread                                               
 U.S. 10-year dollar swap      -16.75         0.25    
 spread                                               
 U.S. 30-year dollar swap      -55.00        -0.75    
 spread                                               
 
 (Reporting by Sam Forgione; Editing by Bill Trott and Meredith
Mazzilli)

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