January 15, 2019 / 8:47 PM / 2 months ago

TREASURIES-U.S. yields rise on Brexit deal optimism

    * UK parliament rejects May's Brexit deal
    * U.S. corporate bond supply prompts some Treasury selling
    * Risk appetite rises, helps U.S. yields

 (Recasts with Brexit vote outcome, adds analyst comment,
updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Jan 15 (Reuters) - U.S. Treasury yields edged
higher in choppy trading on Tuesday on prospects for a
resolution concerning Britain's exit from the European Union
despite being rejected by British lawmakers.
    Yields initially fell after the deal's rejection by the UK
parliament, but came right back up as market participants pored
over the headlines.
    U.S. 30-year yields traded higher for most of the session,
hitting a four-week high and advancing for a second straight
    In a widely expected outcome, UK lawmakers turned down Prime
Minister Theresa May's Brexit deal by 232 votes.
That could open several scenarios, ranging from resurrecting her
deal, leaving the EU with no deal at all, or holding another
referendum that could halt Brexit altogether.
    "The 232-vote difference was close enough to what people
were expecting and so that gives the prime minister's government
some negotiating room to make another step forward for a
resolution," said Jim Vogel, interest rates strategist, at FTN
Financial in Memphis, Tennessee.
    He added that Treasuries have become "increasingly
sensitive" to stories that have no apparent end, such as Brexit
and the U.S. government shutdown.
    In afternoon trading, U.S. 10-year note yields were up
slightly at 2.713 percent, from 2.71 percent late
    Stan Shipley, fixed income strategist at Evercore ISI in New
York said he does not see much upside in U.S. 10-year Treasury
prices as he expects yields to rise from current levels.
    "Based on inflation expectations, the 10s look like a low
3-handle here," he added. "Yields are not really going to tumble
here unless the risk of a U.S. recession climbs higher."
    U.S. 30-year bond yields rose to 3.075 percent,
from 3.06 percent on Monday. Thirty-year yields climbed to as
high as 3.08 percent, a four-week peak.
    On the short end of the curve, U.S. 2-year yields were
modestly lower on the day at 2.53 percent, compared with
Monday's 2.535 percent.
    U.S. yields across most maturities earlier rose, bolstered
by strong corporate debt supply as well as increased risk
appetite with gains in oil prices and Wall Street shares. 
    A solid slate of U.S. corporate bond supply helped drive the
sell-off in Treasuries, pushing yields higher
    "The corporate calendar is picking up so there is some
hedging going on," said Priya Misra, head of global rates
strategy at TD Securities in New York. 
    Ahead of corporate supply, bond managers tend to hedge
against large interest rate moves by selling U.S. government
    Four deals are expected to price in the investment grade
market on Tuesday, with Fox and Citibank two of the biggest
names. Three deals were priced on Monday totaling $5 billion, 
bringing monthly issuance to $59.05 billion, according to IFR
      January 15 Tuesday 3:22PM New York / 2022 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             2.4025       2.4509    0.005
 Six-month bills               2.455        2.5205    0.000
 Two-year note                 99-241/256   2.5306    -0.004
 Three-year note               99-248/256   2.5109    -0.003
 Five-year note                100-114/256  2.5287    0.000
 Seven-year note               100-32/256   2.6051    0.006
 10-year note                  103-136/256  2.713     0.003
 30-year bond                  105-204/256  3.0765    0.016
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        16.50         0.75    
 U.S. 3-year dollar swap        12.50         0.25    
 U.S. 5-year dollar swap         8.75         0.00    
 U.S. 10-year dollar swap        2.50         0.25    
 U.S. 30-year dollar swap      -21.25        -0.50    
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Bernadette
Baum, Chris Reese and Richard Chang)
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