May 8, 2018 / 2:40 PM / 10 months ago

TREASURIES-Yields drift higher on political uncertainty over Iran, Italy

    By Kate Duguid
    NEW YORK, May 8 (Reuters) - U.S. government bond yields
across maturities drifted higher on Tuesday, as uncertainty
about the fate of the Iran nuclear deal and Italian elections
spurred a moderate sell-off. 
    Treasury yields followed the dollar up. The dollar extended
its earlier gains versus a basket of currencies to a
fresh 2018 high on Tuesday as pessimism about the United States
remaining in the Iran deal spurred safe-haven demand for the
    "What the market is pricing at this point - though not
pricing fully - is a scrapping of the (Iran) deal but without a
plan B in place," said Bruno Braizinha, interest rates
strategist Societe Generale in New York.
    U.S. President Donald Trump is expected to announce later on
Tuesday that he is pulling out the deal, European officials
said, after they struggled to persuade him that the accord has
halted Iran's nuclear ambitions.
    A rise in Italian bond yields also drove the moderate
increase in their American counterparts on Tuesday. "A bit of
the risk-off sentiment is driven by the widening we've seen in
peripheral Europe, particularly in Italy," Braizinha said.
    Italian government bond yield rose sharply on Tuesday,
lifting southern European peers, as the possibility of an early
Italian election increased with the country's largest
anti-establishment parties polling strongly. This raises the
likelihood of an unprecedented immediate return to the polls,
even as early as July.
    The 10-year Treasury yield was last at 2.980
percent, above Monday's close at 2.950 percent. The 30-year
yield was last at 3.141 percent, above its last
close at 3.120 percent. The two-year note's yield was
last at 2.514 percent, up from 2.497 at the end of Monday's
    The Treasury Department will kick off this week's auctions
of $73 billion in U.S. debt with the sale of $31 billion in
three-year notes on Tuesday. This represents an
increase in issuance of $1 billion from April, and of $7 billion
from February. 
    The Treasury on May 2 announced the increased supply of debt
to offset the impact of the Federal Reserve's reduction in its
bond buying. The new debt supply will also be used to fund the
$1.5 trillion the Republican-backed tax cut will add to the
federal deficit. 

May 8 Tuesday 10:27AM New York / 1427 GMT
 US T BONDS JUN8               143-5/32     -0-13/32  
 10YR TNotes JUN8              119-120/256  -0-56/25  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.85         1.8846    0.050
 Six-month bills               2.0125       2.0615    0.030
 Two-year note                 99-188/256   2.5135    0.016
 Three-year note               99-60/256    2.6476    0.017
 Five-year note                99-182/256   2.8126    0.029
 Seven-year note               99-168/256   2.9298    0.030
 10-year note                  98-24/256    2.976     0.026
 30-year bond                  97-88/256    3.1378    0.018
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        26.00        -0.75    
 U.S. 3-year dollar swap        22.00        -0.50    
 U.S. 5-year dollar swap        12.25        -0.75    
 U.S. 10-year dollar swap        3.50        -0.25    
 U.S. 30-year dollar swap      -10.50         0.50    
 (Reporting by Kate Duguid; Editing by Will Dunham)
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