Bonds News

TREASURIES-U.S. yields edge lower after drop in consumer confidence

NEW YORK, Oct 25 (Reuters) - U.S. long-dated Treasury yields slipped on Tuesday following a decline in U.S. consumer confidence this month, although the outlook on yields remained upbeat as investors become increasingly convinced the Federal Reserve will raise interest rates in December.

After the release of the U.S. consumer confidence report, U.S. 10-year note and 30-year bond yields, which move inversely to prices, fell from one-week highs. U.S. two-year note yields also slid from two-week peaks.

Data from the Conference Board showed the U.S. consumer confidence index dropped to 98.6 in October from a downwardly revised 103.5 in September. October’s figure now sits below the 103.8 cycle-high hit January last year.

Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets in New York took note of the labor differential figure (jobs plentiful minus jobs hard to get), which slipped to 2.2 from 5.3 the previous month, ending the run of consecutive gains.

“This is a meaningful anecdote as we look forward to next week’s NFP (non-farm payrolls) release,” Lyngen said. “That said, it’s still early in the process of developing a market skew for the official (jobs) data.”

With the confidence data out of the way, the market is now looking to the U.S. two-year $26 billion auction later in the session.

In late morning trading, benchmark 10-year Treasury notes were up 5/32 in price to yield 1.745 percent, down from 1.763 percent late on Monday. Earlier in the session, 10-year yields hit a one-week peak at 1.788 percent.

U.S. 30-year bonds were 17/32 higher in price to yield 2.489 percent, down from Monday’s 2.516 percent. U.S. 30-year yields touched a one-week peak of 2.5411 percent earlier on Tuesday.

The yield curve has also flattened, with the spread between U.S. five-year notes and U.S. 30-year bonds falling to 122.70 basis points.

U.S. two-year note yields, meanwhile, were at 0.844 percent , slightly up from Monday’s 0.840 percent. Earlier in New York trading, two-year yields hit a two-week high of 0.86 percent.

“There is a little more conviction in the market that the Fed will likely hike at the end of the year,” said John Hermann, interest rates strategist, at Mitsubishi UFJ Securities in New York.

“I think that at the November meeting next week, the Fed will likely give a slightly forward guidance for the December hike,” he added

Interest rates futures implied traders saw nearly an 80 percent chance the U.S. central bank would raise rates in December, according to CME Group’s FedWatch program. (Reporting by Gertrude Chavez-Dreyfuss; Editing by Chris Reese)