March 7, 2018 / 7:41 PM / 2 months ago

TREASURIES-Prices steady in choppy session as trade fears, rate hikes weighed

 (Adds quote, updates prices)
    * Cohn resignation intensifies trade war fears
    * 235,000 U.S. jobs added in February -ADP
    * Fed's Brainard more hawkish on the economy

    By Karen Brettell
    NEW YORK, March 7 (Reuters) - Treasuries were little changed
on the day Wednesday in choppy trading as investors weighed the
risks of trade wars following the resignation of Gary Cohn, the
top economic advisor to U.S. President Donald Trump, and the
prospect of a more hawkish Federal Reserve as economic momentum
improves.
    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, interest rate
strategist at Cantor Fitzgerald in New York. “It’s a little more
uncertainty.”
    Benchmark 10-year notes were last little changed
from Tuesday at yields of 2.88 percent, though trading was
choppy through the day.
    Bonds largely moved in parallel with stocks, with yields
falling as stocks dropped and rising when stocks gained.
    Treasuries were supported earlier on Wednesday by data
showing the U.S. trade deficit grew to a more than nine-year
high in January, with the shortfall with China widening sharply.

    They pared price gains, however, after payrolls processor
Automatic Data Processing (ADP) said that employers added
235,000 jobs in February, more than expected.
    Friday’s employment report for February will be evaluated
for new indications of rising wages after January’s report
showed wages recording their largest annual gain in more than
8-1/2 years.
    “There may be a little bit more anticipation than what we’ve
had lately for the jobs report on Friday because of the wage
report that we had for the last one,” said Lou Brien, a market
strategist at DRW Trading in Chicago.
    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 U.S. 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.
    
                               Price                  
 US T BONDS JUN8               143-5/32     -0-7/32   
 10YR TNotes JUN8              120-20/256   0-12/256  
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.655        1.685     0.003
 Six-month bills               1.8375       1.8805    0.005
 Two-year note                 99-254/256   2.2539    0.008
 Three-year note               99-136/256   2.4158    0.009
 Five-year note                99-234/256   2.6435    -0.001
 Seven-year note               99-168/256   2.8045    -0.002
 10-year note                  98-228/256   2.879     0.002
 30-year bond                  97-24/256    3.1506    0.015
                                                      
   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        11.50         0.50    
 spread                                               
 U.S. 10-year dollar swap        1.75         0.25    
 spread                                               
 U.S. 30-year dollar swap      -17.50         0.50    
 spread                                               
 
 (Editing by Bernadette Baum and Meredith Mazzilli)
  
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