February 26, 2018 / 3:22 PM / 9 months ago

TREASURIES-U.S. bond yields fall ahead of Powell testimony

    * Traders await clues from Fed's Powell testimony before
Congress
    * U.S. 10-year yield holds below 4-year peak
    * Fed's Bullard worry about further U.S. rate increases
    * Foreigners step up buying at February refunding - Treasury
data

    By Richard Leong
    NEW YORK, Feb 26 (Reuters) - U.S. Treasury yields fell on
Monday as traders reduced their bearish bond positions in
advance of new Federal Reserve Chairman Jerome Powell's
semi-annual monetary policy testimony before Congress this week.
    Last week, the benchmark 10-year yield reached a four-year
high near 3 percent on concerns about growing inflation and the
U.S. government deficit expected from last year's massive tax
overhaul and a two-year budget deal this month.
    Powell's debut appearance as head of the U.S. central bank
is seen as critical for financial markets trying to determine
whether he will take a more hawkish stance in raising interest
rates than his predecessors, Janet Yellen and Ben Bernanke.

    For now, most traders believe Powell will stick to a gradual
rate-hike approach despite indications that inflation is perking
up.
    "I don't think he will have a big outlook that will say
inflation is on a tear," said Thomas Roth, head of U.S. Treasury
trading at MUFG Securities Americas in New York.
    Powell will testify before the House of Representatives'
Financial Services Committee on Tuesday and the Senate Banking
Committee on Thursday.
    At 10:00 a.m. (1500 GMT), the yield on 10-year Treasury
notes was 2.837 percent, down over 3 basis points
from Friday. Last Wednesday, it reached 2.957 percent, which was
the highest since January 2014, Reuters data showed.
    Last week's yield rise was offset by safe-haven demand for
Treasuries stemming from recent volatility in the stock market
and the emergence of month-end buying to rebalance portfolios,
analysts and traders said.
    "The market was a little overextended on the downside," Roth
said.
    In the wake of surprisingly strong data on wage gains and
inflation in February, traders have ratcheted up bets that the
Federal Reserve might raise interest rates four times in 2018,
which is one more increase than what U.S. policymakers signaled
in December.
    Earlier Monday, St. Louis Fed President James Bullard said
further rate hikes may become too restrictive for the economy if
they are not accompanied by data that shows faster growth and
inflation.
    The bond market has recovered from last week's torrid pace
of supply as the government has increased its borrowing to
finance a rising budget shortfall due to the tax cuts and
increased spending.
    Last week's $258 billion worth of Treasury bill and coupon
supply was the second largest ever over a three-day period.

    Earlier this month, foreigners increased their purchases of
U.S. government debt at the $66 billion February refunding,
Treasury data released on late Friday showed.
    
February 26 Monday 10:01AM New York / 1501 GMT
                               Price                  
 US T BONDS MAR8               144-24/32    22/32     
 10YR TNotes MAR8              120-248/256  8/32      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.61         1.6387    -0.005
 Six-month bills               1.8025       1.8439    -0.003
 Two-year note                 100-14/256   2.2219    -0.020
 Three-year note               99-172/256   2.365     -0.025
 Five-year note                100-40/256   2.5915    -0.026
 Seven-year note               99-236/256   2.7623    -0.030
 10-year note                  99-64/256    2.8368    -0.034
 30-year bond                  97-132/256   3.1283    -0.032
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       61.30        -1.20     
 30-year vs 5-year yield       53.60        -0.05     
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        26.00         0.75    
 spread                                               
 U.S. 3-year dollar swap        23.00         0.00    
 spread                                               
 U.S. 5-year dollar swap        10.75         0.25    
 spread                                               
 U.S. 10-year dollar swap       -0.25        -1.00    
 spread                                               
 U.S. 30-year dollar swap      -20.25        -1.25    
 spread                                               
 
    

 (Reporting by Richard Leong; Editing by Jonathan Oatis)
  
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