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TREASURIES-U.S. bond yields climb after Senate approves budget plan
October 20, 2017 / 7:20 PM / a month ago

TREASURIES-U.S. bond yields climb after Senate approves budget plan

    * Investors dump bonds as Senate vote raises tax-cut hopes
    * U.S. 2-year yield near 9-year peak, 10-year 2-week high
    * Speculation on Fed chief nominee keeps traders on edge
    * Brexit, Catalonia worries limit yield rise before weekend

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, Oct 20 (Reuters) - U.S. Treasury yields rose on
Friday, with two-year yields reaching a near nine-year high, as
investors reduced bond holdings on worries about more inflation
and federal borrowing after the U.S. Senate passed a budget
resolution.
    The Senate's move late Thursday raised expectations the
Republican-controlled Congress and U.S. President Donald Trump
would be able to enact their tax-cut package, which would widen
the federal deficit by up to $1.5 trillion over the next decade.

    Fears over further federal borrowing to fund the tax cuts
and a possible pickup in inflation as a result reversed a late
Thursday rally in the bond market in reaction to a report that 
Trump is leaning towards a Federal Reserve chair nominee who is
seen as unlikely to change the Fed's current easy policy stance.
    "The mood seems to more constructive about tax reform, but
it depends on what's in the deal," said Chris Iggo, chief
investment officer of fixed income at AXA Investment Managers in
London.
    The yield on 10-year Treasury notes reached a
two-week peak of 2.392 percent. It was 2.383 percent, up 6 basis
points for its biggest weekly rise in five weeks, according to
Reuters data.
    The two-year yield touched a near nine-year peak
at 1.580 percent on bets for faster economic growth due to the
tax-cut plan, allowing the Fed to raise interest rates further.
    The rise in yields was capped by worries about the
negotiation between Britain and European Union officials for the
former to leave the trade bloc. Anxiety about the Spanish
government's handling of Catalonia's push to secede also limited
some selling in safe-haven U.S. government debt.

    The bond market has experienced some volatility in the past
24 hours due to reports about Trump's possible preference to
head the Federal Reserve.
    Traders have been speculating on Trump's possible picks for
Fed chief: Fed Governor Jerome Powell; current Fed Chair Janet
Yellen; his chief economic adviser, Gary Cohn; former Fed
Governor Kevin Warsh and Stanford University economist John
Taylor.
    Trump is expected to announce his nominee in the coming
days.
    "We expect that there will be a change but we don't know in
which direction," said Larry Milstein, head of government and
agency trading at R.W. Pressprich & Co. in New York. "Powell is
middle of the road."
    Powell is seen as likely to stick with the Fed's gradual
rate hike path and to loosen financial regulations.    
    Trump told Fox Business Network on Friday he was considering
both Powell and Taylor to serve as Fed Chair and Vice Chair,
adding he hasn't ruled out Yellen.
  October 20 Friday 3:05PM New York / 1905 GMT
                               Price                  
 US T BONDS DEC7               152-7/32     -1-10/32  
 10YR TNotes DEC7              124-212/256  -0-112/2  
                                            56        
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.085        1.103     0.010
 Six-month bills               1.24         1.265     0.008
 Two-year note                 99-156/256   1.5804    0.025
 Three-year note               99-188/256   1.7168    0.027
 Five-year note                99-82/256    2.0202    0.045
 Seven-year note               99-84/256    2.23      0.055
 10-year note                  98-220/256   2.3809    0.060
 30-year bond                  97-40/256    2.8929    0.065
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        23.50        -0.75    
 spread                                               
 U.S. 3-year dollar swap        22.25         0.00    
 spread                                               
 U.S. 5-year dollar swap         7.50        -0.75    
 spread                                               
 U.S. 10-year dollar swap       -2.75        -0.25    
 spread                                               
 U.S. 30-year dollar swap      -30.50        -0.25    
 spread                                               
 
    

        

 (Editing by Bernadette Baum and Chizu Nomiyama)
  

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