April 19, 2018 / 2:52 PM / a year ago

CORRECTED-TREASURIES-Moderate retracement in yields after two weeks of flattening

 (Corrects headline and first paragraph to reflect curve had
been flattening, not steepening)
    By Kate Duguid
    NEW YORK, April 19 (Reuters) - Yields on longer-dated
maturities climbed modestly higher on Thursday after two weeks
of rising less than shorter-dated bonds, retracing some of the
yield curve's flattening.
    The previous nine continuous trading days of flattening
follow a trend that began in mid-February. That trade was "well
into oversold territory," suggesting the move is technical and
that there is still room for the curve to steepen, said Ian
Lyngen, head of U.S. rates strategy at BMO Capital Markets in
New York.  
    "We're at a period of consolidation as the market
establishes new volume levels in this zone," he said.
    There is little significant data being released this week,
but if the steepening move is technical, it would likely reverse
once the market receives more fundamental inputs. Those include
next week's Treasury auctions and the advance estimate of
first-quarter gross domestic product on April 27. 
    Not all analysts agreed. The overnight rise in the yield on
the benchmark government note is evidence of "continued signs of
positive economic growth," said Jim Barnes, director of fixed
income for Bryn Mawr Trust in Devon, Pennsylvania.  
    Strong economic fundamentals could be behind Thursday's 3.8
basis point increase in the spread between two- and 10-year
yields and the 2.5 basis point increase in the
five- and 30-year spread.
    The 10-year Treasury yield was up 4.7 basis
points from its last close, to 2.914 percent. 
    "I don't think you're going to see a flattening this year,"
said Barnes. "Economic growth prospects look good and I think
we’ll continue to maintain that same positive but somewhat slow
economic growth profile." 
    Americans boosted their spending in March, unemployment is
low at 4.1 percent and wages inched higher, according to the
Labor Department's payrolls report released earlier this month.
But inflation has nevertheless remained stubbornly low. 
    That helps explain why the 10- and 30-year yields, which are
proxies for the market's view on the health of the economy and
future levels of inflation, have been rising more slowly than
two-year yields, which are sensitive to investors'
expectation of interest-rate hikes. A flattening yield curve
suggests the market believes the Fed will continue to raise
rates even if there is skepticism about U.S. growth and
    "I think (the spread between five- and 30-year yields) will
invert by the end of the year, but not by the end of the month,"
said Lyngen. 
    He conceded, however, that all could change in a moment.  
"We’re always one tweet away from a flight to quality." 

      April 19 Thursday 10:31AM New York / 1431 GMT
 US T BONDS JUN8               143-25/32    -1-5/32   
 10YR TNotes JUN8              119-228/256  -0-64/25  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.79         1.823     0.010
 Six-month bills               1.9575       2.0044    0.002
 Two-year note                 99-168/256   2.4316    0.005
 Three-year note               99-104/256   2.5828    0.011
 Five-year note                98-216/256   2.7515    0.020
 Seven-year note               98-132/256   2.862     0.033
 10-year note                  98-164/256   2.9098    0.043
 30-year bond                  97-240/256   3.1064    0.060
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        28.50         0.50    
 U.S. 3-year dollar swap        22.00         0.00    
 U.S. 5-year dollar swap        11.50         0.00    
 U.S. 10-year dollar swap        2.00        -0.75    
 U.S. 30-year dollar swap      -14.50        -0.75    


 (Reporting by Kate Duguid; Editing by Dan Grebler)
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