December 7, 2018 / 8:34 PM / 11 days ago

TREASURIES-U.S. yield curve steepens on bets for rate-hike pause

    * Weaker-than-expected jobs data boost view on slower U.S.
growth
    * Angst over U.S.-China trade tension feed safety bids for
bonds
    * Rates futures imply traders see one U.S. rate hike in 2019
    * U.S. 10-year yield on track to fall for five straight
weeks

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, Dec 7 (Reuters) - The margin between short- and
long-end U.S. Treasury yields grew on Friday as
weaker-than-expected data on domestic jobs growth in November
bolstered the view that the Federal Reserve may tap the brakes
on raising interest rates sooner than previously thought.
    Bets that the end of the U.S. central bank's rate-hike
campaign is on the horizon and a rally in oil prices after an
OPEC deal to reduce output briefly reduced demand for safe-haven
U.S. government debt, analysts said.
    "The market is really fading the idea that the Fed can keep
raising rates without slowing the economy," said Robert Tipp,
chief investment strategist at PGIM Fixed Income in Newark, New
Jersey.
    Bond yields have fallen over the past month on worries about
slowing global growth and declining oil prices. Fears about the
Brexit negotiations and trade tension between China and the
United States had stoked safety bids for Treasuries.
    Unease about trade relations between Washington and Beijing
grew on comments from White House trade adviser Peter Navarro
following the arrest of a top executive oat Huawei Technologies.

    Earlier Friday, the U.S. Labor Department said public and
private employers hired 155,000 workers in November, fewer than
the 200,000 forecast by economists polled by Reuters, while the
jobless rate held at a 49-year low of 3.7 percent.
    Wage growth remained modest, rising 0.2 percent last month.
    The benchmark 10-year Treasury yield was down 2
basis points at 2.852 percent, wiping out an earlier
5-basis-point increase. On Thursday, it touched 2.826 percent, a
three-month low.
    The 10-year yield was on track to post its steepest drop
since October 2015, Refinitiv data showed.
    The two-year yield fell 4 basis points to 2.715
percent.
    The entire yield curve steepened, with the spread between
two-year and 10-year yields widening 2 basis points to 14 basis
points. 
    The front half of the yield curve remained inverted after
two-year and three-year yields rose above five-year yields for
the first time in over a decade earlier this week.
    This market phenomenon has stoked speculation on whether a
U.S. recession is looming. 
    Interest rates futures suggested traders saw a 75 percent
chance the Fed would raise rates by a quarter point to 2.25-2.50
percent at its Dec. 18-19 meeting, up from 71 percent on
Thursday, CME Group's FedWatch showed.
    Futures prices implied traders expected little chance of
more than one rate hike in 2019.
    Back in September, Fed policymakers on average had projected
three rate increases for next year.
    
December 7 Friday 3:24PM New York / 2024 GMT
                               Price                  
 US T BONDS MAR9               143-12/32    6/32      
 10YR TNotes MAR9              120-176/256  9/32      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2.3475       2.3937    -0.016
 Six-month bills               2.47         2.5353    -0.016
 Two-year note                 100-17/256   2.7149    -0.043
 Three-year note               100-110/256  2.7211    -0.045
 Five-year note                100-210/256  2.6975    -0.050
 Seven-year note               100-176/256  2.7658    -0.037
 10-year note                  102-92/256   2.8504    -0.026
 30-year bond                  104-132/256  3.1411    0.005
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       13.40        0.15      
 30-year vs 5-year yield       44.10        3.30      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        15.50        -1.00    
 spread                                               
 U.S. 3-year dollar swap        11.50        -2.25    
 spread                                               
 U.S. 5-year dollar swap        11.75        -1.50    
 spread                                               
 U.S. 10-year dollar swap        5.00        -1.75    
 spread                                               
 U.S. 30-year dollar swap      -14.75        -2.75    
 spread                                               
 
    
 (Reporting by Richard Leong
Editing by Chizu Nomiyama, Dan Grebler and Jonathan Oatis)
  
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