May 19, 2017 / 7:25 PM / in 8 months

TREASURIES-Yields near one-month lows as political risk in focus

 (Adds Trump details, Bullard comments, Treasury supply; Updates
    * Trump allegations main investor focus
    * Bullard warns against aggressive rate hikes
    * Treasury to sell $88 bln coupon-bearing supply next week

    By Karen Brettell
    NEW YORK, May 19 (Reuters) - U.S. Treasury yields fell on
Friday as investors worried that allegations against U.S.
President Donald Trump would disrupt efforts to cut taxes and
increase spending.
    The Washington Post on Friday reported that a legal
investigation into possible coordination between the Trump
campaign and Russia includes a person of interest that is a
current White House official.
    Trump on Thursday denied asking former FBI Director James
Comey to drop a probe into his former national security adviser,
Michael Flynn, and Russia.             
    "The bigger concern about Trump is the derailing of the
Trump agenda," said Gennadiy Goldberg, an interest rate
strategist at TD Securities in New York.
    "It wasn’t just the strength of economic data that has
driven the markets to be more optimistic; part of it was the
expectations that Trump will bolster growth," said Goldberg.
"The derailing of the Trump agenda would act against that."
    A White House official said on Friday that Trump will
propose $200 billion in infrastructure spending over 10 years in
his first budget on Tuesday.             
    Benchmark 10-year note yields             were unchanged on
the day at 2.23 percent, after earlier rising as high as 2.26
percent. The yields fell as low as 2.18 percent on Thursday,
their lowest since April 19.
    The Fed is expected to raise rates when it meets in June.
Traders are not pricing in additional increases, though, as
investors are reluctant to take short positions.
    "The risk of getting completely crushed by an unexpected
headline, or a leaked tape or memo is too great. I think that is
keeping a lot of investors on the sidelines," said Goldberg.
    Futures traders are pricing in a 74 percent chance of a June
rate hike, but only a 42 percent likelihood of two or more rate
increases by year-end, according to the CME Group's FedWatch
    Softening economic data in recent weeks has also reduced
some expectations of a more aggressive Fed. 
    St. Louis Fed President James Bullard said on Friday that
the U.S. central bank's expected plans for rate increases may be
too fast for an economy that has shown recent signs of weakness,
making the case for a continued go-slow approach as inflation
progress stalls.             
    The Treasury will sell $88 billion in coupon-bearing supply
next week, including $26 billion in two-year notes on Tuesday,
$34 billion in five-year notes on Wednesday and $28 billion in
seven-year notes on Thursday.

 (Editing by Lisa Von Ahn and Grant McCool)
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