December 28, 2018 / 9:19 PM / 2 years ago

TREASURIES-U.S. 10-year yield hits 10-month lows amid Wall St volatility

    * U.S. Treasuries on track for best month in 2-1/2 years 
    * Treasury funds attract most inflows since February 2015
    * Pending home sales fall in Nov; Chicago PMI dips in Dec
    * U.S. bond market to close at 2 p.m. EST on Monday

 (Updates with late market action)
    By Richard Leong
    NEW YORK, Dec 28 (Reuters) - U.S. Treasury yields slipped on
Friday and 10-year yields hit their lowest level in over 10
months as investors remained anxious about the economy and
turmoil in Washington including a partial government shutdown.
    The year-end stampede into safe-haven Treasuries has pushed
the $15.5 trillion sector toward its biggest monthly rally in
2-1/2 years, on track to bring it into positive territory for
2018, according to an index compiled by Bloomberg and Barclays.
    "It's been a move in risk reduction. Treasuries have always
served that role. There's a lot of chaos out there," said Jerry
Paul, senior vice president of fixed income at ICON Advisers in
    Wall Street tacked on gains on Friday, building on a late
rally on Thursday. Earlier in the volatile week, the benchmark
S&P 500 index touched a 20-month low. Then on Wednesday
the S&P 500, the Dow Jones industrial average and Nasdaq
 logged their biggest daily jumps in nearly a decade.

    In a sign the stock market might stabilize, U.S. fund
investors shifted $5.2 billion into equity mutual funds and ETFs
for the first time in six weeks, according to research service
firm Lipper late on Thursday. Investors also added $4.2 billion
to Treasury funds in the week ended Dec. 26, the most since
February 2015, the Lipper data showed.
    Signs of softening business activity and a flat Treasury
yield curve have raised concerns the U.S. economy might enter a
recession in late 2019. Those worries have stoked bets the
Federal Reserve might stop raising interest rates, analysts
    Domestic pending home sales unexpectedly fell by 0.7 percent
in November, while the Chicago Purchasing Management Index
slipped in December.
    Trade tensions between China and the United States have
added to worries about corporate profits and the economy.
    Still, some investors reckoned a tight U.S. labor market and
the massive federal tax cut enacted a year ago would provide an
adequate boost for the economy going into 2019.
    "The economy has too much going for it to have a recession,"
said James Sarni, senior portfolio manager with Payden & Rygel
in Los Angeles.
    Benchmark 10-year Treasury yields were down 2.7 
basis points at 2.716 percent, after touching 2.713 percent in
late trading, which was the lowest level since Feb. 6.
    Two-year yields ended at 2.518 percent, which was
the lowest level since July 2. 
    As of Thursday, the Treasury sector, tracked by Bloomberg
and Barclays, had generated a total return of 1.88 percent in
December, on track for its strongest monthly performance since
June 2016, when it produced a 2.21 percent gain.
    The U.S. bond market will close early at 2 p.m. EST (1900
GMT) on Monday on New Year's Eve and stay shut on Tuesday for
New Year's Day. 
December 28 Friday 4:06PM New York / 2106 GMT
 US T BONDS MAR9               145-27/32    10/32     
 10YR TNotes MAR9              121-200/256  8/32      
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             2.3425       2.3886    -0.021
 Six-month bills               2.415        2.4781    -0.021
 Two-year note                 99-248/256   2.5161    -0.032
 Three-year note               100-96/256   2.4924    -0.042
 Five-year note                100-86/256   2.553     -0.038
 Seven-year note               100          2.625     -0.035
 10-year note                  103-136/256  2.7146    -0.028
 30-year bond                  106-224/256  3.0237    -0.005
         YIELD CURVE           Last (bps)   Net       
 10-year vs 2-year yield       19.70        -0.50     
 30-year vs 5-year yield       46.80        3.00      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        15.00         1.25    
 U.S. 3-year dollar swap        11.00         1.50    
 U.S. 5-year dollar swap         4.50         0.00    
 U.S. 10-year dollar swap        1.75         0.00    
 U.S. 30-year dollar swap      -18.25        -1.25    

 (Reporting by Richard Leong; Editing by Tom Brown and Leslie
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