June 17, 2019 / 2:30 PM / a month ago

TREASURIES-U.S. yields rise as Fed looms this week

    By Gertrude Chavez-Dreyfuss
    NEW YORK, June 17 (Reuters) - U.S. Treasury yields edged
higher on Monday in choppy trading, as investors reversed
safe-haven flows and booked profits on some gains last week, but
the mood was still cautious as investors brace for this week's
Federal Reserve monetary policy meeting.
    The Fed is unlikely to cut interest rates this week, but its
statement will be analyzed for clues on possible near-term
easing moves, analysts said.
    Monday's sentiment has been darkened somewhat by weak U.S.
economic data and persistent pressure emanating from the trade
conflict with China.
    Data on the New York Fed's business index showed a record
fall this month to its weakest level in more than 2-1/2 years,
suggesting an abrupt contraction in regional activity and
prompting an earlier fall in U.S. yields.  
    The regional Fed's "Empire State" index on current business
conditions tumbled to -8.6 in June from 17.8 in May. This was
the first negative reading since October 2016 when it was -9.2.
Analysts polled by Reuters had forecast a reading of 10.0 for
March.
    "The Empire manufacturing was shockingly weak," said Stan
Shipley, fixed income strategist at Evercore ISI in New York.
"So we got more bad data on top of the employment number that we
got two weeks ago." 
    He also said the news coming out of the trade front has been
disappointing. "The administration made it quite clear they
don't have a lot of expectations for the G20 meeting here."
    U.S. Commerce Secretary Wilbur Ross told CNBC on Monday that
President Donald Trump is ready to proceed with tariffs on the
remaining $300 billion in Chinese goods in the absence of a
trade deal.
    "We will eventually make a deal, but if we don't the
president is perfectly happy with continuing the tariff
movements that we've already announced, as well as imposing new
ones that has been temporarily suspended," Ross said. 
    Despite Monday's negative sentiment, however, Evercore's
Shipley said the odds are low for an easing this week.
    "The Fed will probably set the conditions where they could
ease in July," said Shipley. "That is probably tied to inflation
 and economic growth. So you're going to need a strong snapback
in jobs, retail sales, and inflation and it doesn't look like
you're going to get that."
    In morning trading, U.S. 10-year note yields rose to 2.101%
 from 2.094% late on Monday.
    Yields on U.S. 30-year bonds advanced to 2.598%,
from 2.593% on Monday.
    On the short end of the curve, U.S. 2-year yields were up at
1.87% from Monday's 1.851%.
    
      June 17 Monday 10:18AM New York / 1418 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2.135        2.1758    -0.006
 Six-month bills               2.13         2.1884    0.010
 Two-year note                 100-123/256  1.8728    0.022
 Three-year note               99-208/256   1.8146    0.019
 Five-year note                100-174/256  1.8556    0.010
 Seven-year note               101-4/256    1.9679    0.007
 10-year note                  102-116/256  2.0994    0.005
 30-year bond                  105-196/256  2.5965    0.003
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         2.25         0.75    
 spread                                               
 U.S. 3-year dollar swap         1.25         0.75    
 spread                                               
 U.S. 5-year dollar swap        -1.75         0.50    
 spread                                               
 U.S. 10-year dollar swap       -6.75         0.50    
 spread                                               
 U.S. 30-year dollar swap      -33.00         0.25    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss
Editing by Nick Zieminski)
  
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