October 22, 2019 / 7:43 PM / a month ago

TREASURIES-U.S. yields retreat, track sterling, on Brexit chaos

    * UK lawmakers reject Johnson's timetable for Brexit deal
approval
    * Chinese vice foreign minister says progress made in trade
talks
    * U.S. existing home sales come in lower than expected 
    * U.S. two-year note auction shows solid demand

 (New throughout, updates prices, market activity and comments,
adds Brexit news, U.S. 2-year note auction)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Oct 22 (Reuters) - U.S. Treasury yields dropped on
Tuesday, in line with sterling's movements, as investors bought
safe-haven debt after UK lawmakers voted against Prime Minister
Boris Johnson's extremely tight timetable to approve his deal
for Britain to exit the European Union.
    German Bund, UK 10-year Gilt yields,
and sterling fell on the day, their weakness spilling
over to the Treasury market.
    Lawmakers voted 322 to 308 against the so-called Programme
Motion which set out a three-day schedule to rush his deal
through the House of Commons.
    Brexit hangs in the balance as the Oct. 31 deadline to leave
the EU nears. 
    Earlier, lawmakers voted 329 to 299 in favor of the second
reading of his 115-page Withdrawal Agreement Bill, a significant
boost for Johnson five days after he struck a last-minute deal
with the EU. 
    "Treasuries are following sterling directionally," said Jon
Hill, vice president, rates strategy at BMO Capital Markets in
New York. "The latest Brexit vote perpetuates more uncertainty."
    Investors were also watching U.S.-China trade talks. China's
Vice Foreign Minister Le Yucheng said Beijing and Washington
have made progress, but warned China would never trade away its
core interests or allow other countries to undermine its
security.
    The United States has announced a "phase 1" deal with China
on trade matters and suspending a scheduled tariff hike for
October.
    In afternoon trading, U.S. 10-year note yields
fell to 1.771% from 1.792% late on Monday. Earlier in the global
session, 10-year yields hit a five-week high of 1.81%.
    Yields on 30-year bonds were down at 2.257%,
from 2.284% on Monday, touching a five-week peak earlier of
2.299%.
    On the short-end of the curve, U.S. two-year yields were
slightly lower at 1.606%, from Monday's 1.615%.
    U.S. yields fell further after U.S. existing home sales came
in below the consensus forecast, although details suggested a
more stable housing market than headlines indicated.

    Ahead of next week's Federal Open Market Committee meeting,
Tuesday's U.S. two-year note auction showed solid demand, with
Treasury accepting $44.18 billion of the $112 billion in bids
submitted. The bid-to-cover ratio, a gauge of demand, was 2.7,
higher than the last four auctions.
    The offering stopped at a high yield of 1.594%, lower than
the expected rate at the bid deadline.
    U.S. two-year yields fell after a well-received auction.
    "This indicates that investors are still very comfortable
buying the front end despite expectations of a hawkish cut,"
said BMO's Hill.
    
  October 22 Tuesday 3:26 PM New York / 1926 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.625        1.659     0.003
 Six-month bills               1.6025       1.6426    -0.010
 Two-year note                 99-204/256   1.6067    -0.008
 Three-year note               99-96/256    1.5907    -0.002
 Five-year note                99-140/256   1.5957    -0.008
 Seven-year note               99-164/256   1.68      -0.017
 10-year note                  98-176/256   1.7712    -0.021
 30-year bond                  99-216/256   2.2572    -0.027
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         1.50        -1.00    
 spread                                               
 U.S. 3-year dollar swap        -0.50        -1.25    
 spread                                               
 U.S. 5-year dollar swap        -1.75        -0.75    
 spread                                               
 U.S. 10-year dollar swap       -7.25        -0.50    
 spread                                               
 U.S. 30-year dollar swap      -37.00        -0.25    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss
Editing by Chizu Nomiyama, Richard Chang and David Gregorio)
  
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