April 1, 2019 / 8:29 PM / 6 months ago

TREASURIES-U.S. bond market takes worst beating in three months

    * U.S. manufacturing activity rebounds in March -ISM
    * China's factory growth resumes for first time in four
    * U.S. retail sales fall short of expectations in February
    * U.S. 3-month, 10-year yield curve steepest in two weeks

 (Updates 10-year yield move)
    By Richard Leong
    NEW YORK, April 1 (Reuters) - The U.S. Treasury market
posted its biggest one-day sell-off in three months on Monday,
as encouraging data on manufacturing activity in the world's two
biggest economies spurred some investors to scale back their
holdings of safe-haven bonds.
    The bond market's wobbly start to the second quarter
followed a solid first quarter, driven by worries about a global
economic slowdown and the Federal Reserve signaling it would not
raise interest rates in 2019.
    "We are going from a bad situation to a less bad situation.
The (manufacturing data) had a impact for sure," said Ellis
Phifer, senior market strategist at Raymond James in Memphis,
    The Institute for Supply Management said its index on U.S.
domestic factory activity rose to 55.3 in March, higher than
what analysts polled by Reuters had expected.
    China's manufacturing sector unexpectedly returned to growth
for the first time in four months in March, data showed earlier
on Monday. The Caixin/Markit Manufacturing Purchasing Managers'
Index (PMI) expanded at the strongest pace in eight months,
rising to 50.8 from 49.9 in February.
    In heavy-volume trading, the yield on U.S. benchmark 10-year
Treasury notes rose nearly 9 basis points for its
biggest single-day jump since Jan. 4. It broke above 2.50
percent to its highest levels in over a week in late U.S.
    Ten-year yields last week fell to 2.340 percent, their
lowest levels in 15 months. 
    "The move was overdone a bit," said Justin Lederer, Treasury
strategist at Cantor Fitzgerald in New York.
    On March 22, 10-year yields fell below three-month bill
rates for the first time since 2007.
    The inversion between three-month rates and 10-year yields
fed speculation about a U.S. economic recession. This market
phenomenon preceded each recession in the past 50 years.
    With 10-year yields back above three-month rates since
Friday, analysts said the chances of a looming recession have
faded a bit as data still suggest the economic expansion will
likely persist in 2019.
    Still the surprise drop on U.S. retail sales in February
reinforced the view of a deceleration in economic activity in
the first quarter. 
    Lingering economic worries, analysts say, will limit the
rise in bond yields following a solid first-quarter when
Treasuries generated 2.1 percent total return based on data from
Barclays and Bloomberg.
    Treasuries trailed a blockbuster quarter for Wall Street
where the S&P 500 jumped 13.1 percent, which was the
strongest quarterly gain since third quarter of 2009.
   Monday, April 1 at 1618 EDT (2018 GMT):
 US T BONDS JUN9                  148-3/32     -50/32    
 10YR TNotes JUN9                 123-148/256  -21/32    
                                  Price        Current   Net
                                               Yield     Change
                                               (pct)     (bps)
 Three-month bills                2.34         2.3858    -0.014
 Six-month bills                  2.375        2.4431    0.002
 Two-year note                    99-216/256   2.3306    0.057
 Three-year note                  100-62/256   2.2894    0.065
 Five-year note                   99-24/256    2.3182    0.075
 Seven-year note                  99-4/256     2.4037    0.083
 10-year note                     101-20/256   2.5009    0.087
 30-year bond                     102-32/256   2.8932    0.073
           YIELD CURVE            Last (bps)   Net       
 10-year vs 2-year yield          16.80        2.60      
 30-year vs 5-year yield          57.40        -0.50     
   DOLLAR SWAP SPREADS                                   
                                  Last (bps)   Net       
 U.S. 2-year dollar swap spread    11.25        -0.25    
 U.S. 3-year dollar swap spread     8.75        -0.25    
 U.S. 5-year dollar swap spread     4.75        -0.25    
 U.S. 10-year dollar swap spread   -0.50        -0.50    
 U.S. 30-year dollar swap spread  -22.75         1.00    

 (Reporting by Richard Leong; Editing by Andrea Ricci)
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