October 17, 2018 / 4:11 PM / a month ago

TREASURIES-U.S. bond yields hold range ahead of FOMC minutes

    * FOMC Sept minutes seen producing no surprises
    * U.S. housing starts fall short of forecast due to storms
    * U.S. mortgage applications hit lowest since late 2014 -
MBA 
    * Foreigners buy most Treasuries since 2015 in August - data

 (Updates market action, adds quote, graphics)
    By Richard Leong
    NEW YORK, Oct 17 (Reuters) - U.S. Treasury yields were
little changed on Wednesday as traders wait for the release of
the Federal Reserve's minutes on its meeting last month when
policy-makers agreed to raise key interest rates for a third
time in 2018.
    Benchmark 10-year yield has been stuck in a narrow range in
the wake of the bond market selloff that capitulated a week ago.
The 10-year yield has traded either side of 3.15 percent after
hitting a 7-1/2 year peak of 3.261 percent last Tuesday.
    "People are not sure which direction the market will move,"
said Larry Milstein, head of government and agency trading at
R.W. Pressprich & Co. in New York. 
    Losses on Wall Street stocks with the S&P 500 down
0.2 percent supported modest demand for Treasuries.
    "The safe-haven bids from equities is pretty muted,"
Milstein said.
    The Federal Open Market Committee, the U.S. central bank's
policy-setting group, will release the record of its last
meeting at 2 p.m. (1800 GMT).
    The minutes may offer details behind the September rate
hike, but are not expected to produce surprises on the Fed's
stance to raise interest rates gradually, despite criticism from
U.S. President Donald Trump, who on Tuesday said the Fed was his
"biggest threat."
    At 12 p.m. (1600 GMT), benchmark 10-year Treasury yield
 was 3.160 percent, up marginally from late Tuesday,
while the 30-year yield was 3.329 percent, little changed on the
day. 
    Fed officials have signaled they may increase short-term
rates at their Dec. 18-19 meeting, which would lift their target
range on key borrowing costs to 2.25-2.50 percent.
    Rising interest rates seem to be taking a bite out of the
housing sector.
    Data showed a 5.3-percent drop in U.S. home construction
last month, raising some concerns about U.S. growth. Most
analysts, however, downplayed the weaker starts figures due to
recent storms and projected building activity to recover in the
coming months.
    "Aside from the weather-related swings, housing starts seem
to be relatively stable," said Stephen Stanley, chief economist
at Amherst Pierpont Securities in Stamford, Connecticut.
    Still, the spike in mortgage rates stemming from the recent
bond market selloff has hurt mortgage activity.
    The Mortgage Bankers Association said its gauge on weekly
mortgage applications fell to its lowest level since December
2014 as home loan rates climbed to their highest in over seven
years.
    Separately, Treasury data released late on Tuesday showed
foreigners bought $63 billion in Treasuries in August, which was
the most since June 2015. However, China and Japan, the top two
foreign owners of U.S. bonds, further reduced their Treasuries
holdings.
October 17 Wednesday 12:00PM EDT/ 1600 GMT
                               Price                   
 US T BONDS DEC8               138-16/32    0          
 10YR TNotes DEC8              118-40/256   -0-16/256  
                               Price        Current    Net
                                            Yield %    Change
                                                       (bps)
 Three-month bills             2.265        2.3097     0.000
 Six-month bills               2.4          2.4632     0.000
 Two-year note                 99-198/256   2.8698     0.004
 Three-year note               99-198/256   2.9546     0.003
 Five-year note                99-82/256    3.0237     0.007
 Seven-year note               99-84/256    3.1081     0.005
 10-year note                  97-156/256   3.1596     0.004
 30-year bond                  93-208/256   3.3286     -0.001
                                                       
   DOLLAR SWAP SPREADS                                 
                               Last (bps)   Net        
                                            Change     
                                            (bps)      
 U.S. 2-year dollar swap        19.25        -0.25     
 spread                                                
 U.S. 3-year dollar swap        17.50        -0.25     
 spread                                                
 U.S. 5-year dollar swap        13.25         0.25     
 spread                                                
 U.S. 10-year dollar swap        6.00         0.25     
 spread                                                
 U.S. 30-year dollar swap       -8.25         0.25     
 spread                                                
 

    
 (Reporting by Richard Leong; Editing by Bernadette Baum and
Susan Thomas)
  
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