December 4, 2018 / 9:04 PM / 9 days ago

TREASURIES-U.S. yield inversion spreads on concerns about slowing growth

    * Parts of yield curve invert for first time in over a
decade
    * Market rally seen fed by short-covering, exit from curve
bets
    * Benchmark 10-year yields fall to lowest in nearly 3 months
    * U.S. markets closed Wednesday to mourn former President
Bush

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, Dec 4 (Reuters) - The difference between
short-dated and long-dated U.S. Treasury yields narrowed further
on Tuesday as the inversion of the yield curve spread between
more maturities, prompted by worries about a slowdown in U.S.
economic growth.
    The yield on the two-year note briefly rose above the
three-year yield for the first time since January
2008. Two-year and three-year yields held above the five-year
yield for a second day, Tradeweb data showed.

    "A lot of the rally in Treasuries has to do with the
sell-off in stocks," said John Canavan, market strategist at
Stone & McCarthy Research Associates in New York.
    Concerns about weakening U.S. growth caused traders to exit
earlier bets on rising bond yields, pushing longer-dated yields
to their lowest levels in nearly three months. 
    Wall Street's main gauges tumbled, with the benchmark S&P
500 falling 2.75 percent. 
    Yield curve inversions are seen generally as precursors of a
recession. An inversion of the two-year and 10-year yields
preceded each U.S. recession in the past 50 years. 
    So far, there has been no inversion of the two-year and
10-year. The 10-year yield clung to an 11-basis-point margin
over its two-year counterpart, although it was the smallest one
in over a decade.
    "It doesn't signal there's a recession anytime soon. It is
signaling expectations of a growth slowdown," Deborah
Cunningham, chief investment officer of money markets at
Federated Investment Management Co in Pittsburgh, said of the
parts of the curve that inverted.
    At 3:29 p.m. EST (2029 GMT), the 10-year Treasury yield
 shed nearly 8 basis points, to 2.915 percent, after
hitting its lowest level since Sept. 7.
    The 30-year yield touched 3.129 percent, the
lowest level since Sept 18.
    Concerns about weaker growth have stoked bets the Federal
Reserve will end its campaign to raise interest rates sooner
than previously thought, analysts said.
    The futures market implied traders expect the U.S. central
bank will raise rates by a quarter percentage point to a range
of 2.25 percent to 2.50 percent at its next policy meeting, on
Dec. 18-19, according to CME Group's FedWatch program.

    However, traders scaled back their expectations of two rate
hikes in 2019 to less than 10 percent, down from 59 percent a
month ago.
    New York Fed President John Williams on Tuesday said he
expects further rate hikes in the face of a strong economy, but
that did not cause traders to reduce their outlook on the number
of future Fed rate hikes.
    U.S. stock and bond markets will be closed on Wednesday for
a national day of mourning for former U.S. President George H.W.
Bush, who died on Friday.
December 4 Tuesday 3:37PM EDT/ 2037 GMT
                               Price                   
 US T BONDS MAR9               142-11/32    1-26/32    
 10YR TNotes MAR9              120-20/256   0-124/256  
                               Price        Current    Net
                                            Yield %    Change
                                                       (bps)
 Three-month bills             2.375        2.4227     0.018
 Six-month bills               2.5025       2.5698     0.008
 Two-year note                 99-229/256   2.8048     -0.028
 Three-year note               100-44/256   2.8134     -0.031
 Five-year note                100-100/256  2.7905     -0.049
 Seven-year note               100-48/256   2.8452     -0.065
 10-year note                  101-208/256  2.9136     -0.077
 30-year bond                  104-8/256    3.1656     -0.112
                                                       
   DOLLAR SWAP SPREADS                                 
                               Last (bps)   Net        
                                            Change     
                                            (bps)      
 U.S. 2-year dollar swap        16.00        -0.75     
 spread                                                
 U.S. 3-year dollar swap        14.25        -1.25     
 spread                                                
 U.S. 5-year dollar swap        13.50        -0.75     
 spread                                                
 U.S. 10-year dollar swap        6.00         0.50     
 spread                                                
 U.S. 30-year dollar swap      -12.75         1.25     
 spread                                                
 
    

    
 (Reporting by Richard Leong
Editing by Paul Simao and Leslie Adler)
  
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