November 17, 2017 / 8:07 PM / a month ago

TREASURIES-U.S. yields slide, tracking Wall Street shares, German bonds

 (Adds comment, updates prices, table)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Nov 17 (Reuters) - U.S. Treasury yields edged
lower on Friday, in line with weakness on Wall Street and
declines in German 10-year bond yields, as the yield curve
continued to flatten following strong U.S. housing starts data
for October.
    U.S. two-year yields hit a fresh nine-year peak on Friday.
The note has touched the nine-year milestone for the last eight
sessions.
    Global risk appetite took a hit earlier on Friday as U.S.
stocks tumbled, weighed down by losses in financial and
technology stocks. German 10-year bond yields, on the other
hand, were on pace for their largest weekly fall in three weeks.

    Yields briefly rose after U.S. housing starts surged 13.7
percent to a seasonally adjusted annual rate of 1.29 million
units, the highest since October 2016.
    "The front end of the curve is building in the greater and
greater probability of Fed rate hikes," said Tom Simons, money
market economist at Jefferies in New York.
    "This week has been a big week for data prior to the
December meeting, especially CPI (consumer price index). The CPI
didn't necessarily reject the December rate hike thing, and so
people are now more comfortable with that," he added. 
    The upbeat U.S. housing data further flattened the yield
curve.
    The gap between U.S. two-year and 10-year yields contracted
to 62.8 basis points, its tightest since November
2007. The difference, meanwhile, in five-year and 30-year yields
narrowed to 73.4 basis points.
    Despite the significant yield curve tightening this year,
there is further scope to go, analysts said.
    "Although the direction has leveled out and possibly turned,
there is room for another 20- to 25-basis point flattening as
Treasury actually announces larger note auctions in the first
quarter," said Jim Vogel, interest rates strategist at FTN
Financial in Memphis, Tennesee.
    "With a stable market outlook with respect to Fed rate
increases next year – between one and two, currently – both
2-year and 3-year could increase in yield an additional 20 basis
points over what would otherwise be expected," he added.
    In late trading, the 10-year Treasury yield fell
to 2.350 percent from 2.361 percent late on Thursday.
    The U.S. two-year yield climbed to a new
nine-year peak of 1.73 percent. It was last at 1.725 percent,
from 1.712 percent on Thursday.
    U.S. 30-year bond yields slid to 2.790 percent,
down from Thursday's 2.806 percent.
    
       Friday, Nov. 17 at 1449 EST (1949 GMT):
                               Price                  
 US T BONDS DEC7               153-26/32    0-8/32    
 10YR TNotes DEC7              124-240/256  0-20/256  
                               Price        Current   Net
                                            yield     change
                                            (pct)     (bps)
 Three-month bills             1.25         1.2712    0.010
 Six-month bills               1.3875       1.4165    0.007
 Two-year note                 99-146/256   1.7255    0.013
 Three-year note               99-198/256   1.8283    0.005
 Five-year note                99-184/256   2.06      -0.005
 Seven-year note               100-24/256   2.2352    -0.008
 10-year note                  99-24/256    2.3523    -0.009
 30-year bond                  99-36/256    2.7925    -0.013
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        16.25        -1.50    
 spread                                               
 U.S. 3-year dollar swap        16.25        -0.50    
 spread                                               
 U.S. 5-year dollar swap         5.75         0.00    
 spread                                               
 U.S. 10-year dollar swap       -1.00        -0.25    
 spread                                               
 U.S. 30-year dollar swap      -23.50         0.25    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss
Editing by Chizu Nomiyama)
  

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