February 26, 2018 / 8:52 PM / 24 days ago

TREASURIES-U.S. bond yields slip before Fed's Powell testimony

    * Traders await clues from Fed's Powell testimony before
    * U.S. 10-year yield holds below 4-year peak
    * Fed's Bullard worry about further U.S. rate increases
    * U.S. new home sales hit 5-month lows

 (Updates market action, adds quote)
    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.
    Data showing domestic new home sales hitting a five-month
low also supported bond demand, which cooled off as Wall Street
stocks rallied in late trading.
    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
    "I would be surprised if he really deviates," said Paresh
Upadhyaya, portfolio manager at Amundi Pioneer Asset Management
in Boston. 
    Powell will testify before the House of Representatives'
Financial Services Committee on Tuesday and the Senate Banking
Committee on Thursday.
    The yield on 10-year Treasury notes was 2.859
percent, down 1 basis point 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," said
Thomas Roth, head of U.S. Treasury trading at MUFG Securities
Americas in New York.
    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
    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.

 February 26 Monday 3:42PM New York / 2042 GMT
 US T BONDS MAR8               144-1/32     -1/32     
 10YR TNotes MAR8              120-200/256  2/32      
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.6175       1.6463    0.002
 Six-month bills               1.81         1.8516    0.005
 Two-year note                 100-10/256   2.2299    -0.012
 Three-year note               99-164/256   2.376     -0.014
 Five-year note                100-18/256   2.6099    -0.008
 Seven-year note               99-200/256   2.7846    -0.007
 10-year note                  99           2.866     -0.005
 30-year bond                  96-224/256   3.1621    0.002
         YIELD CURVE           Last (bps)   Net       
 10-year vs 2-year yield       63.40        0.90      
 30-year vs 5-year yield       55.00        1.50      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        26.50         1.25    
 U.S. 3-year dollar swap        23.50         0.50    
 U.S. 5-year dollar swap        10.75         0.25    
 U.S. 10-year dollar swap        0.00        -0.75    
 U.S. 30-year dollar swap      -20.00        -1.00    

 (Reporting by Richard Leong; Editing by Jonathan Oatis and
Grant McCool)
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