January 16, 2018 / 8:53 PM / 2 months ago

TREASURIES-U.S. yields fall with Europe, curve flattest in 10 years

    * Treasury yields fell Tuesday morning on ECB bond report
    * 5-year, 30-year spread hits lowest point in a decade

    By Gertrude Chavez-Dreyfuss and Kate Duguid
    NEW YORK, Jan 16 (Reuters) - U.S. long-dated Treasury yields
fell on Tuesday morning along with those of European bonds,
after a Reuters report said the European Central Bank was not
quite ready to end its bond-buying scheme at next week's
    "There's a pullback in (German) bund yields and we're seeing
a little bit of that spill over to the U.S.," said Subadra
Rajappa, head of U.S. rates strategy, at Societe Generale in New
    Long-dated U.S. yields earlier dropped to one-week lows,
while those on two-year notes rose after hitting a
more than nine-year high last Friday. At 2:55 p.m. (1955 GMT),
benchmark yields were below Friday's close despite
recouping some losses in midday trading.
    The ECB is unlikely to ditch a pledge to keep buying bonds
at next week's meeting as policymakers need more time to assess
the outlook for the economy and the euro, Reuters reported on
    Tuesday's intra-day yield moves may not be particularly
meaningful. "It's overall a pretty low volatility day," said
Thomas Simons, money market economist at Jefferies & Co in New
York. "It's just that we're off (this morning's) highs," Simons
    Also on Tuesday, the spread between five- and 30-year
maturities hit its lowest point in over 10 years,
sinking to 47.6 basis points. With this move, the U.S. yield
curve resumed its flattening trend after steepening most of last
    The spread between yields of short- and long-dated
maturities has compressed as investors price in the expectation
that the Federal Reserve will continue to raise U.S. overnight
interest rates, even as long-term inflation expectations have
remained low.
    The rate futures market has priced in a more than 72 percent
chance the Fed will raise interest rates at the March meeting,
according to the CME's FedWatch. 
    This week is light on data releases, so it's likely that the
market will be focused on Washington. As the continuing
resolution expires Friday, investors will be watching Congress
to see if it can put together a funding bill in time to avoid a
government shutdown.
    The market will also be watching Fed speeches this week. Of
particular interest will be remarks on Friday from Vice Chair
Randal Quarles, who has yet to make clear where he falls on the
dove-hawk spectrum. 
    In late afternoon trading, the benchmark 10-year Treasury
yield slipped to 2.544 percent at 3:21 p.m. (2021
GMT), from 2.552 percent at Friday's close. 
    U.S. two-year yields, meanwhile, were at 2.018
percent, above 2.002 percent on Friday. 

January 16 Tuesday 3:24PM New York / 2024 GMT
 US T BONDS MAR8               150-27/32    0-11/32   
 10YR TNotes MAR8              122-248/256  0-8/256   
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.4025       1.4267    -0.018
 Six-month bills               1.565        1.599     -0.003
 Two-year note                 99-186/256   2.0183    0.016
 Three-year note               99-164/256   2.1245    0.009
 Five-year note                98-240/256   2.3534    0.005
 Seven-year note               98-144/256   2.4762    -0.005
 10-year note                  97-120/256   2.5426    -0.009
 30-year bond                  98-96/256    2.8309    -0.022
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        19.75       ******    
 U.S. 3-year dollar swap        19.25       ******    
 U.S. 5-year dollar swap         5.25       ******    
 U.S. 10-year dollar swap        0.25       ******    
 U.S. 30-year dollar swap      -18.25         1.50    
 (Reporting by Gertrude Chavez-Dreyfuss and Kate Duguid; Editing
by David Gregorio and Cynthia Osterman)
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