July 3, 2019 / 6:23 PM / 17 days ago

TREASURIES-Record low euro zone yields drive down U.S. yields

    * U.S. private sector adds fewer workers than expected in
June-ADP
    * U.S. services growth cools to slowest pace in two years -
ISM
    * Euro zone yields tumble as Lagarde nominated as next ECB
chief
    * U.S. bond market shuts early, stays closed for Fourth of
July 

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, July 3 (Reuters) - U.S. Treasury yields fell on
Wednesday with 10-year yields hitting their lowest in over 2-1/2
years as euro zone yields tumbled on record lows on bets the
European Central Bank's next chief would stay a dovish course to
help the euro zone economy.
    Expectations of more ECB stimulus under Christine Lagarde,
who had headed the International Monetary Fund, when she takes
over from Mario Draghi in November raised the prospect that
global bond yields have room to fall, analysts said.

    "Treasuries rallied in sympathy with European bonds on news
IMF head Christine Lagarde will be nominated to become the next
ECB President as she is expected to pursue dovish monetary
policy," said Karl Haeling, head of capital markets sales at
LBBW.
    Reinforcing traders' perception of easy monetary policy was
U.S. President Donald Trump's nominations of Christopher Waller
and Judy Shelton to the Federal Reserve Board. Both are seen as
dovish in their policy stance.
    Benchmark 10-year Treasury yields were down 2.40
basis points at 1.953%. They touched 1.939% earlier, which was
the lowest since November 2016, as 10-year German bund yields
 reached a record low at -0.399%.
    U.S. 30-year yields fell to 2.465%, which was
the lowest since October 2016.
    The U.S. bond market closed early, at 2 p.m. EDT (1800 GMT),
on Wednesday, ahead of the U.S. July Fourth holiday on Thursday.
    The demand in Treasuries was curbed by the rally on Wall
Street where major averages closed at record highs in an
abbreviated session.
    The Fed, the ECB and other major central banks are
considering whether to embark on lowering interest rates and/or
buying more assets to combat sluggish inflation, and slowing
growth exacerbated by global trade tensions.
    "It's monetary policy to the rescue," said Andrew Richman,
director of fixed income at SunTrust Advisory Services. "There
are expectations of a synchronization of policy easing among
central banks." 
    Even in the United States where its economic expansion hit a
record run this month, there are signs of cooling.
    Payroll processor ADP said on Wednesday U.S. companies added
102,000 jobs in June, falling short of the 140,000 forecast by
economists polled by Reuters. The prior month's figure was
revised up to 41,000 from an originally reported 27,000
increase.
    Meanwhile, the U.S. trade gap widened to a five-month high
in May, which was likely a drag on economic growth in the second
quarter.
    The growth of the vast services sector fell to its slowest
pace since July 2017, the Institute for Supply Management said.
 
    Amid these omens of a decelerating economy, traders fully
expect Fed officials will agree to lower U.S. interest rates by
at least a quarter point at the end of July to preserve the
longest economic expansion on record, based on CME Group's
calculation of interest rates futures prices.
   
July 3 Wednesday 2:05PM EDT/ 1805 GMT
                               Price                   
 US T BONDS SEP9               156-22/32    0-19/32    
 10YR TNotes SEP9              128-68/256   0-32/256   
                               Price        Current    Net
                                            Yield %    Change
                                                       (bps)
 Three-month bills             2.1625       2.2105     0.006
 Six-month bills               2.03         2.0794     -0.006
 Two-year note                 99-187/256   1.7636     -0.001
 Three-year note               100-30/256   1.7089     -0.003
 Five-year note                100-16/256   1.7368     -0.011
 Seven-year note               100-68/256   1.8343     -0.017
 10-year note                  103-196/256  1.9532     -0.024
 30-year bond                  108-132/256  2.4701     -0.038
                                                       
   DOLLAR SWAP SPREADS                                 
                               Last (bps)   Net        
                                            Change     
                                            (bps)      
 U.S. 2-year dollar swap         3.25        -0.75     
 spread                                                
 U.S. 3-year dollar swap         1.50        -1.00     
 spread                                                
 U.S. 5-year dollar swap        -2.00        -1.00     
 spread                                                
 U.S. 10-year dollar swap       -5.25        -0.75     
 spread                                                
 U.S. 30-year dollar swap      -32.00         0.25     
 spread                                                
 

    
 (Reporting by Richard Leong; editing by Jonathan Oatis and
Susan Thomas)
  
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