March 7, 2018 / 2:15 PM / 5 months ago

TREASURIES-Prices gain as Cohn resignation adds to trade war fears

    * Cohn resignation intensifies trade war fears
    * ADP shows 235,000 jobs added in February
    * Fed's Brainard more hawkish on the economy

    By Karen Brettell
    NEW YORK, March 7 (Reuters) - Treasury prices climbed on
Wednesday on safety buying after the resignation of Gary Cohn,
the top economic advisor to U.S. President Donald Trump, fanned
fears that Trump will proceed with protectionist tariffs and
risk a global trade war.
    Cohn’s resignation on Tuesday came after he lost a fight
over Trump's plans to impose hefty steel and aluminum import
tariffs.
    “The concern is that there could be trade wars, and secondly
that Gary Cohn is a big player over the last year in his
economic decisions,” said Justin Lederer, an interest rate
strategist at Cantor Fitzgerald in New York. “It’s a little more
uncertainty.”
    Bonds were also supported by data showing that the U.S.
trade deficit increased to a more than nine-year high in
January, with the shortfall with China widening sharply.
    Bonds pared price gains, however, after other data from
payrolls processor Automatic Data Processing (ADP) showed that
employers added 235,000 jobs in February, more than expected.

    Benchmark 10-year notes were last up 5/32 in
price to yield 2.86 percent, down from 2.88 percent on Tuesday.
    Stronger economic data and higher inflation readings are
raising expectations that the Federal Reserve will hike interest
rates four times this year, more than the three increases that
were previously expected.
    Fed Governor Lael Brainard adopted a more hawkish tone in a
speech on Tuesday, noting economic "headwinds are shifting to
tailwinds" given the "substantial" boost from tax cuts and
government spending, and synchronized global growth.

    The comments back testimony from Fed Chairman Jerome Powell
last week that the economy had strengthened recently, a remark
that prompted investors to increase bets on four rate increases
in 2018.
    Friday’s employment report for February will be evaluated
for any new indications of rising wages.
    U.S. job growth surged in January and wages rose further,
recording their largest annual gain in more than 8-1/2 years,
bolstering expectations that inflation will push higher this
year as the labor market hits full employment.
    
                               Price                  
 US T BONDS JUN8               143-17/32    0-5/32    
 10YR TNotes JUN8              120-52/256   0-44/256  
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.65         1.6799    -0.002
 Six-month bills               1.83         1.8727    -0.002
 Two-year note                 100-4/256    2.2418    -0.004
 Three-year note               99-144/256   2.4047    -0.002
 Five-year note                99-252/256   2.6283    -0.017
 Seven-year note               99-196/256   2.7871    -0.020
 10-year note                  99-16/256    2.8589    -0.018
 30-year bond                  97-116/256   3.1316    -0.004
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        28.00         0.50    
 spread                                               
 U.S. 3-year dollar swap        23.50         0.75    
 spread                                               
 U.S. 5-year dollar swap        11.75         0.75    
 spread                                               
 U.S. 10-year dollar swap        2.00         0.50    
 spread                                               
 U.S. 30-year dollar swap      -17.75         0.25    
 spread                                               
 
 (Editing by Bernadette Baum)
  
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