September 10, 2019 / 7:06 PM / 5 days ago

TREASURIES-U.S. yields advance, in line with German bonds, as risk appetite rises

    * Investors brace for ECB decision
    * German finmin says govt can counter crisis through
    * Germany's Merkel says govt sticking to balanced budget
    * U.S. 3-year note was lackluster-analysts

 (Adds new comment, Treasury's 3-year note auction, updates
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Sept 10 (Reuters) - U.S. Treasury yields climbed
to four-week peaks on Tuesday, tracking German bonds, as risk
appetite continued to improve with diminishing U.S.-China trade
tensions and expectations of fiscal stimulus measures from
Germany, Europe's largest economy.
    "Segments of market sentiment have turned because the 'buy
anything because something may go wrong' idea is past for now,"
said Jim Vogel, interest rates strategist, at FTN Financial in
Memphis, Tennessee. 
    Concerns over a prolonged U.S.-China trade dispute have
ebbed a little bit, as Washington and Beijing agreed to return
to the negotiating table sometime next month.
    U.S. yields rose for a second straight session, with
investors also awaiting a key monetary policy meeting at the
European Central Bank on Thursday. Investors expect the ECB to
cut interest rates, but may introduce some form of compensation
for banks to offset the unwelcome side effects of negative
interest rates.
    "As we wait on news on Thursday morning, it's not surprising
that people have the jitters of what they're going to hear from
the ECB, which has been the focus of attention since the
beginning of August," FTN's Vogel said.
    Germany's 30-year government bond yield briefly turned
positive on Tuesday, ahead of the ECB meeting and bolstered by
possible stimulus measures from its government.
    German Finance Minister Olaf Scholz said on Tuesday the
government can counter a possible economic crisis by injecting
billions of euros into the economy. German Chancellor Angela
Merkel, however, tempered expectations for fiscal stimulus,
saying her government is sticking to its balanced budget
    In afternoon trading, U.S. benchmark 10-year note yields
 rose to 1.698% from 1.622% late on Monday. Early in
the session, 10-year yields hit a four-week high of 1.702%.
    "There's room for a little bit of bounce," said Guy LeBas,
chief fixed income strategist at Janney Montgomery Scott in
Philadelphia. "There's support around 1.71% in the 10-year."
    But this is all temporary, LeBas said. "Twelve months from
now, I suspect rates will have revisited the all-time lows."
    Yields on 30-year bonds advanced to 2.178% from
2.098% on Monday, rallying from record lows of 1.905% touched in
late August. U.S. 30-year yields also hit a four-week peak of
2.182% earlier in the global session.
    At the short end of the curve, U.S. two-year yields rose to
1.655% from Monday's 1.575%, hitting a three-week
high as well of 1.609%.
    The Treasury's three-year note auction was lackluster,
analysts said, with the yield higher than the expected level at
the bid deadline. There were $92.1 bln in bids for a 2.42 cover,
lower than average.
    Indirect bidders, which include foreign central banks, took
46.2%, slightly lower versus August's 46.7% and the 46.9%
      September 10 Tuesday 2:53 PM New York / 1853 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.92         1.9616    0.003
 Six-month bills               1.8425       1.8908    0.021
 Two-year note                 99-178/256   1.6578    0.083
 Three-year note               99-180/256   1.6041    0.088
 Five-year note                98-134/256   1.5599    0.083
 Seven-year note               98-68/256    1.6393    0.081
 10-year note                  99-84/256    1.6988    0.077
 30-year bond                  101-140/256  2.1793    0.081
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        -1.50        -1.00    
 U.S. 3-year dollar swap        -5.50        -0.75    
 U.S. 5-year dollar swap        -6.75        -0.50    
 U.S. 10-year dollar swap      -11.75        -0.75    
 U.S. 30-year dollar swap      -42.00        -0.75    
 (Reporting by Gertrude Chavez-Dreyfuss
Editing by Chizu Nomiyama and Richard Chang)
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