June 6, 2018 / 3:23 PM / 2 months ago

TREASURIES-U.S. yields rise on worries ECB buying fewer bonds

    * ECB Praet's remarks kindle concerns about ECB bond taper
    * U.S. trade gap shrinks to 7-month low in April
    * Heavy corporate bond calendar weighs on Treasuries

    By Richard Leong
    NEW YORK, June 6 (Reuters) - U.S. Treasury yields rose on
Wednesday with the 10-year yield hitting a 1-1/2 week high on
worries that the European Central Bank would end the expansion
of its massive bond purchase program later this year.
    Jitters that the ECB would buy fewer bonds triggered a broad
sell-off in German Bunds and other European government debt,
which spilled over to the Treasuries sector, analysts said.
    Political turmoil in Italy and Spain in recent days has
spurred speculation ECB policy-makers may back away from winding
down their 2.55 trillion euro ($3 trillion) program in
September.
    Comments from ECB chief economist Peter Praet on Wednesday
undercut that notion by suggesting the central bank is
encouraged with the rise in inflation, which would allow a
tapering of bond purchases.
    ECB policy-makers are scheduled to meet on Thursday, June
14.
    "Bunds were the leading the sell-off," said John Canavan,
market strategist at Stone & McCarthy Research Associates in New
York. Praet's comments "pulled forward the ECB move in some
people's mind."
    At 10:58 a.m. (1458 GMT), the benchmark 10-year Treasury
yield was up more than 4 basis points at 2.963
percent after touching a 1-1/2 week high, while two-year yields
 increased about 3 basis points to 2.520 percent.
    The 10-year German Bund yield climbed nearly 10
basis points to 0.465 percent, while Italian 10-year yields
 jumped almost 16 basis points to 2.916 percent,
Reuters data showed.
    News that the U.S. trade deficit fell to a seven-month low
in April strengthened views that the Federal Reserve would raise
short-term interest rates at least twice more this year, adding
upward pressure on yields.
    Interest rates futures implied traders saw a 94 percent
chance the U.S. central bank would raise overnight borrowing
costs by a quarter point to 1.75-2.00 percent next Wednesday,
CME Group's FedWatch program showed.    
    Moreover, a heavy supply of corporate bonds this week has
spurred sales of lower-yielding Treasuries, analysts said.
    So far this week, companies raised about $26 billion in the
investment-grade bond market, according to IFR, a unit of
Thomson Reuters.
June 6 Wednesday 10:59AM New York / 1459 GMT
                               Price                  
 US T BONDS SEP8               142-17/32    -30/32    
 10YR TNotes SEP8              119-92/256   -11/32    
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.915        1.951     0.003
 Six-month bills               2.0825       2.1339    0.008
 Two-year note                 99-246/256   2.5202    0.028
 Three-year note               99-238/256   2.6497    0.031
 Five-year note                99-192/256   2.8041    0.044
 Seven-year note               99-188/256   2.9173    0.047
 10-year note                  99-56/256    2.9662    0.047
 30-year bond                  100-12/256   3.1225    0.047
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       44.40        1.20      
 30-year vs 5-year yield       31.70        0.35      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        26.25        -0.75    
 spread                                               
 U.S. 3-year dollar swap        22.00        -0.50    
 spread                                               
 U.S. 5-year dollar swap        13.25        -0.50    
 spread                                               
 U.S. 10-year dollar swap        5.50        -0.25    
 spread                                               
 U.S. 30-year dollar swap       -8.50        -0.50    
 spread                                               
 
    

 (Reporting by Richard Leong; Editing by Dan Grebler)
  
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