January 9, 2019 / 2:20 PM / 7 months ago

TREASURIES-Trade deal optimism sends yields to highest levels this year

    * 'Sense of optimism' from reports on US-China trade talks
    * Fed to release minutes from December meeting
    * Treasury to sell $24 billion 10-year notes

    By Karen Brettell
    NEW YORK, Jan 9 (Reuters) - U.S. Treasury yields rose to
their highest this year on Wednesday as optimism that the United
States would reach a trade deal with China boosted risk
appetite, and before the Treasury Department was due to sell a
new 10-year supply.
    Chinese and U.S. teams ended trade talks in Beijing on
Wednesday that lasted longer than expected and officials said
details will be released soon, raising hopes of avoiding an
all-out trade war that could badly disrupt the global economy.
    "There were reports about progress in the China, U.S. trade
negotiation, although no deal has been struck yet. Nonetheless
there is a sense of optimism associated with that," said Ian
Lyngen, head of U.S. rates strategy at BMO Capital Markets in
New York.
    Stronger stock markets and risk appetite also reduced safe
haven demand for bonds.     
    "I think there is still a subset of the market in the 'buy
the dip' mentality for risk assets," Lyngen said.
    Benchmark 10-year notes             were last down 7/32 in
price to yield 2.740 percent after earlier rising to 2.747
percent, the highest since Dec. 28.
    The yields have fallen from 3.05 percent at the beginning of
December as concerns about slowing global growth and U.S.
Federal Reserve interest rate increases prompted a sharp
sell-off in stocks.
    They rose from one-year lows reached last Thursday, however,
after Fed Chairman Jerome Powell said on Friday he was aware of
the risks of an economic slowdown and would be patient and
flexible in policy decisions this year.             
    Investors will look for new clues on interest rate policy
when the Fed releases minutes from its December meeting on
Wednesday and in a speech by Powell on Thursday.
    Market volatility has boosted expectations that the U.S.
central bank will not raise rates this year even though the Fed
has signaled two hikes are likely.
    The Treasury Department will sell $24 billion in 10-year
notes on Wednesday, the second sale of $78 billion in
coupon-bearing supply this week.
    A $38 billion three-year note sale on Tuesday had the lowest
ratio of bids to offers since April 2009.             
    The government will also sell $16 billion in 30-year bonds
on Thursday.

 (Editing by Jeffrey Benkoe)
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