February 1, 2018 / 5:11 PM / 8 months ago

TREASURIES-U.S. bond yields rise on profit-taking

    * ISM U.S. factory prices paid index highest since May 2011
    * Further yield curve flattening is expected to resume

 (Updates market action, adds quotes)
    By Richard Leong
    NEW YORK, Feb 1 (Reuters) - U.S. Treasury yields rose on
Thursday as some investors reduced curve-related bets that
earned profits last month tied to expectations the Federal
Reserve would raise short-term interest rates further due to an
improving economy.
    The Treasuries market started February on its back foot
following its worst month since November 2016. They produced
nearly a 1.4 percent loss, according to an index
compiled by Bloomberg and Barclays.
    The spread between longer-dated yields and short-dated ones
also contracted to the tightest level in over a decade on
Wednesday after the U.S. Treasury Department favored selling
more short-dated debt than longer-dated issues to finance the
projected rise in its budget deficit.
    "You are seeing more profit-taking on the curve-flattener
trade," said Mike Lorizio, head of Treasuries trading at
Manulife Asset Management in Boston.
    The spread between five-year and 30-year Treasury yields
widened to 43 basis points, a day after it touched nearly 41
basis points, a level not seen since August 2007, according to
Tradeweb.    
    On the other hand, Lorizio expected the curve-flattening
move to resume once the profit-taking subsides.
    "Further flattening of the curve seems inevitable with the
supply coming and more Fed rate hikes," he said.
    The Treasury said on Wednesday it planned faster growth in
two-year and three-year debt issuance versus the rise in
longer-dated supply.
    At 11:43 a.m. (1643 GMT), benchmark 10-year Treasury yields
 were up over 2 basis points at 2.744 percent. They
reached a near four-year peak at 2.754 percent on Wednesday,
Reuters data showed.
    The five-year yield reached 2.556 percent, the
highest since April 2010, while the two-year yield
touched 2.173 percent, the highest since September 2008.
    On the data front, the Institute for Supply Management said
its U.S. manufacturing sector prices paid index rose to 72.7 in
January, which was the highest since May 2011, suggesting
inflation is gathering momentum.
  February 1 Thursday 11:44AM New York / 1644 GMT
                               Price                  
 US T BONDS MAR8               147-5/32     -0-21/32  
 10YR TNotes MAR8              121-108/256  -0-40/25  
                                            6         
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.445        1.4704    0.005
 Six-month bills               1.605        1.6405    -0.024
 Two-year note                 99-178/256   2.1569    0.012
 Three-year note               99-36/256    2.3028    0.014
 Five-year note                99-60/256    2.5392    0.013
 Seven-year note               98-212/256   2.6849    0.022
 10-year note                  95-200/256   2.7445    0.024
 30-year bond                  95-176/256   2.969     0.028
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        19.25         0.50    
 spread                                               
 U.S. 3-year dollar swap        18.75         0.50    
 spread                                               
 U.S. 5-year dollar swap         8.25         1.00    
 spread                                               
 U.S. 10-year dollar swap        3.00         0.25    
 spread                                               
 U.S. 30-year dollar swap      -12.25         0.25    
 spread                                               
 
    

    
 (Reporting by Richard Leong
Editing by Chizu Nomiyama)
  
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