May 30, 2018 / 7:27 PM / 21 days ago

TREASURIES -U.S. yields rise as Italy worries ease, for now

    * U.S. private payrolls report show job gains of 178,000
    * U.S. 2nd GDP growth estimate for Q1 at 2.2 pct
    * Italy seeks exit from political turmoil

 (Adds comment, updates prices in text, table)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, May 30 (Reuters) - U.S. Treasury yields rose on
Wednesday, reversing sharp losses the previous session fueled by
the Italian political crisis, as financial markets stabilized
after Italy sought to end its turmoil with a plan for a new
government. 
    U.S. benchmark 10-year yields, which move inversely to
prices, had posted their largest one-day drop in nearly two
years on Tuesday, while those on two-year notes had their
largest daily fall in more than nine years.
    On a total return basis, the U.S. Treasury market rose 0.93
percent on Tuesday, its largest daily gain in nearly
seven years, according to the Bloomberg Barclay's Treasury
Aggregate Index. 
    On Wednesday, U.S. Treasury gains have been unwound, in line
with moves in the European bond market.
    Prime Minister-designate Carlo Cottarelli said on Wednesday
that possibilities had emerged "for the birth of a political
government," and that financial market turmoil and other
circumstances, "have caused me to wait for further
developments."
    "Italian contagion will continue to be a volatile component 
  for the marketplace going forward," said Tom di Galoma,
managing director at Seaport Global Holdings in New York.
    "However, from what has been seen overnight with decent bids
coming in for the Italian auctions and the rise in Dow futures
-- this has created a risk-on environment enabling the U.S.
10-year to sell off substantially," he added.
    Italy sold 5.57 billion euros ($6.5 billion) in bonds,
though narrowly missing the top of its targeted issuance range
of 3.75 billion to 6.0 billion euros. The auction somewhat eased
concerns about Italy's ability to finance itself.
    Yields, meanwhile, pared gains after Wednesday's U.S. data
showing a slight miss in expectations with the private sector
payrolls report and the second estimate for gross domestic
product. 
    A report by U.S. payrolls processor ADP showed that a total
of 178,000 jobs were created this month, lower than expectations
for gains of 190,000. In addition, the April payrolls were
revised down to 163,000 from the original estimate of 204,000
jobs.
    Meanwhile, U.S. economic growth slowed slightly more than
initially thought in the first quarter amid downward revisions
to inventory investment and consumer spending.
    But the data had little impact on the Treasury market.
    In afternoon trading, U.S. 10-year yields rose to 2.842
percent, from Tuesday's 2.768 percent.
    U.S. 30-year yields were last at 3.014 percent,
up from 2.967 percent late on Tuesday.
    On the short-end of the curve, U.S. 2-year yields were up at
 2.415 percent, from Tuesday's 2.319 percent.
    
      Wednesday, May 30 at 1509 EDT (1909 GMT):
                               Price                    
 US T BONDS JUN8               145-15/32    -0-25/32    
 10YR TNotes JUN8              120-152/256  -0-164/256  
                               Price        Current     Net
                                            Yield       Change
                                            (pct)       (bps)
 Three-month bills               1.8875     1.9229      0.037
 Six-month bills                 2.0325     2.0821      0.057
 Two-year note                 100-42/256   2.4155      0.096
 Three-year note               100-68/256   2.531       0.110
 Five-year note                100-92/256   2.6727      0.097
 Seven-year note               100-136/256  2.7909      0.089
 10-year note                  100-72/256   2.8423      0.074
 30-year bond                  102-56/256   3.012       0.045
                                                        
   DOLLAR SWAP SPREADS                                  
                               Last (bps)   Net Change  
                                            (bps)       
 U.S. 2-year dollar swap        23.75        -0.75      
 spread                                                 
 U.S. 3-year dollar swap        19.50        -1.00      
 spread                                                 
 U.S. 5-year dollar swap        11.50        -0.25      
 spread                                                 
 U.S. 10-year dollar swap        3.75         0.25      
 spread                                                 
 U.S. 30-year dollar swap      -10.75         0.50      
 spread                                                 
 
 (Reporting by Gertrude Chavez-Dreyfuss
Editing by Chizu Nomiyama and Nick Zieminski)
  
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