October 15, 2018 / 7:42 PM / 9 months ago

TREASURIES-U.S. yields rise as supply weighs despite retail sales, geopolitics

    * Rising bond supply seen bearish for Treasuries market 
    * U.S. retail sales rise 0.1 pct in September, less than
    * Safe-haven bids for bonds muted from West-Saudi tension 

 (Adds latest U.S. deficit figure in paragraph 11)
    By Richard Leong
    NEW YORK, Oct 15 (Reuters) - U.S. Treasury yields rose on
Monday despite stock market volatility stemming from rising
borrowing costs and geopolitical risks, while the outlook for
U.S. economic growth was tempered by weaker-than-expected data
on domestic retail sales. 
    Rising loan rates, which make it more costly for consumers
to buy a car or home and for companies to finance their debt,
have spurred concerns about the durability of the economic
expansion and whether the Federal Reserve may consider a pause
in raising interest rates after 2018, analysts said.
    U.S. retail sales barely rose in September as a rebound in
motor vehicle purchases was offset by the biggest drop in
spending at restaurants and bars in nearly two years.
    But other details of the report from the U.S. Commerce
Department on Monday were upbeat and suggested that consumer
spending ended the third quarter with strong momentum, which
should provide a boost to economic growth despite anticipated
drags from weak exports and a struggling housing market.
    Some analysts expected Treasury yields to trade sideways in
the near term with monthly data on payrolls and inflation in the
rear-view mirror.
    "The market will likely settle into its new range after the
volatile trading of the past couple of weeks," said Boris
Rjavinski at Wells Fargo Securities in New York. 
    Last week, the benchmark 10-year Treasury yield
reached 3.261 percent, which was last seen in May 2011, while
the 30-year yield hit a four-year peak at 3.446
percent. They reversed from those levels due to a dramatic
sell-off in global equities markets. 
    The yield on 10-year Treasury notes was up 1.5 basis points
at 3.156 percent, while the 30-year yield climbed by the same
increment to 3.332 percent.
    Wall Street's three main indexes were
weaker in mid-afternoon trading but above their session lows.
    The government said retail sales edged up 0.1 percent last
month, below a 0.6 percent forecast among analysts polled by
Reuters. The modest headline figure was mitigated by more upbeat
details that suggest resilience in consumer spending.

    Safe-haven demand for U.S. bonds seemed muted despite
growing tension between Western powers and Saudi Arabia after
the disappearance of Saudi journalist Jamal Khashoggi, a critic
of that nation's crown prince, analysts said.
    Growing U.S. government debt, which is expected to increase
in the coming decade to fund a rising federal deficit, is also a
long-term driver of U.S. yields.  
    On Monday, the U.S. Treasury Department said the federal
deficit reached $779 billion in 2018 fiscal year, the largest
budget gap since 2012.
    Investors picked up much of last week's $74 billion in
Treasuries supply, but it is unclear whether their appetite for
U.S. debt will persist as the supply continues to grow.
    This week, the Treasury Department will debut a two-month
bill issue worth $25 billion on Tuesday and sell $5 billion in
30-year Treasury Inflation Protected Securities on Thursday.

    Asset managers scaled back their bullish positions in
10-year Treasuries last week, while hedge funds reduced their
bearish 10-year bond bets, according to data from the Commodity
Futures Trading Commission released on Friday.
October 15 Monday 2:41PM EDT/ 1841 GMT
 US T BONDS DEC8               138-15/32    -0-8/32    
 10YR TNotes DEC8              118-52/256   -0-36/256  
                               Price        Current    Net
                                            Yield %    Change
 Three-month bills             2.2375       2.2808     0.010
 Six-month bills               2.4025       2.465      0.023
 Two-year note                 99-204/256   2.8571     0.017
 Three-year note               99-206/256   2.9435     0.016
 Five-year note                99-96/256    3.0115     0.017
 Seven-year note               99-96/256    3.1004     0.019
 10-year note                  97-164/256   3.1557     0.015
 30-year bond                  93-196/256   3.3312     0.015
   DOLLAR SWAP SPREADS                                 
                               Last (bps)   Net        
 U.S. 2-year dollar swap        19.75         1.50     
 U.S. 3-year dollar swap        17.00         0.75     
 U.S. 5-year dollar swap        12.25         0.25     
 U.S. 10-year dollar swap        4.50         0.50     
 U.S. 30-year dollar swap      -10.50         0.00     

 (Reporting by Richard Leong; Editing by Andrea Ricci and Dan
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