October 19, 2017 / 7:03 PM / 10 months ago

TREASURIES-U.S. yields fall as stocks retreat from record highs

    * U.S. 2-year yield retreats from near nine-year high
    * Trump meets Yellen as part of Fed chief selection process
    * U.S. sells $5 billion 30-year TIPS to solid demand
    * Traders brush off upbeat U.S. jobless claims, Philly Fed

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, Oct 19 (Reuters) - U.S. Treasury yields fell on
Thursday with the two-year yield scaling back from a near
nine-year peak as a retreat in U.S. stock prices from record
highs revived some safe-haven appetite for bonds.
    Bond yields also declined as some traders booked profits on
bearish bond bets tied to expectations of reduced stimulus from
major central banks.
    "We are seeing a bit of short-covering. We had a pretty
strong upward move in yields in the past month. Stocks have also
pulled back a bit," said Alex Manzara, vice president at R.J.
O'Brien and Associates in Chicago.
    The drop in yield was limited as Wall Street equity prices
pared initial losses and traders speculated on U.S. President
Donald Trump's five possible picks as Fed chief: current Fed
Chair Janet Yellen; his chief economic adviser, Gary Cohn;
former Fed Governor Kevin Warsh; current Fed Governor Jerome
Powell and Stanford University economist John Taylor.
    Trump met on Thursday with Yellen, whose term expires in
February. He is expected to announce his nominee in the coming
    "The sooner we see (a decision) the better. It would take
another uncertainty out of the market," said Mary Ann Hurley,
vice president of fixed income at D.A. Davidson in Seattle.
    Traders brushed off upbeat data that supported the notion of
steady U.S. economic growth, which would allow the Federal
Reserve to possibly raise interest rates in December.
    The government said first-time filings for jobless benefits
fell to the lowest since March 1973 last week, while the
Philadelphia Federal Reserve's index of U.S. Mid-Atlantic
business activity unexpectedly reached a five-month high in
    The two-year Treasury note yield was down 1 basis
point at 1.555 percent after reaching 1.571 percent, the highest
since October 2008, Reuters data showed.
    The yield spread between U.S. 2-year government debt and its
German counterpart narrowed to 226 basis points, a
day after hitting its widest since February 2000 on the view
that the European Central Bank is less hawkish than the Fed.
    Benchmark 10-year Treasury yields were down over
1 basis point at 2.325 percent, retreating from a one-week high
of 2.352 percent on Wednesday.
    Wall Street stocks recovered much of their early losses on
weaker technology shares. The Dow and S&P 500 were
marginally lower in afternoon trading.
    On the supply front, the government sold $5 billion of
30-year Treasury Inflation Protected Securities to solid demand
  October 19 Thursday 2:53PM New York / 1853 GMT
 US T BONDS DEC7               153-17/32    0-16/32   
 10YR TNotes DEC7              125-68/256   0-32/256  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.075        1.0929    -0.002
 Six-month bills               1.2325       1.2574    0.005
 Two-year note                 99-168/256   1.5549    -0.008
 Three-year note               99-208/256   1.6896    -0.013
 Five-year note                99-136/256   1.9749    -0.012
 Seven-year note               99-172/256   2.1761    -0.012
 10-year note                  99-92/256    2.3232    -0.016
 30-year bond                  98-124/256   2.8254    -0.025
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        24.00        -0.50    
 U.S. 3-year dollar swap        22.00         0.00    
 U.S. 5-year dollar swap         8.00        -0.25    
 U.S. 10-year dollar swap       -2.50         0.25    
 U.S. 30-year dollar swap      -30.25         0.25    
 (Reporting by Richard Leong; Editing by Meredith Mazzilli and
James Dalgleish)
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