October 30, 2019 / 2:52 PM / 21 days ago

TREASURIES-Yields fall after data shows weaker U.S. growth

 (New throughout; adds analyst quotes)
    By Kate Duguid
    NEW YORK, Oct 30 (Reuters) - Treasury yields on Wednesday
were lower following data which showed U.S. economic growth
slowed in the third quarter, albeit less than expected.
    The Commerce Department reported gross domestic product
increased at a 1.9% annualized rate in the third quarter, as
declining business investment was offset by resilient consumer
spending and a rebound in exports.
 
    The report is not likely to have any bearing on the Federal
Reserve's decision later Wednesday on whether to cut interest
rates for the third time this year, but could allow the central
bank to pause monetary easing in the months ahead. Traders are
currently pricing in a 99.5% chance of a cut Wednesday, up from
39.6% a month ago, according to CME Group's FedWatch tool.  
    "With this number today, it probably gives (the Fed) the
luxury of sitting on the sidelines for the rest of the year,"
said Craig Bishop, lead strategist, U.S. fixed income, RBC
Wealth Management.
    Yields jumped immediately following the GDP data, before
giving back those gains and then some. The two-year yield was
down 2 basis points to 1.622%, while the 10-year
yield was down 2.8 basis points to 1.807%. 
    "The initial knee-jerk reaction showed the Treasury market
was expecting more pessimistic data," said Bishop, referring
both to the GDP print and the ADP payrolls report for October,
which showed that private employers added slightly more jobs
this month than forecast. 
    "Nonetheless (the data) is still heading in the same
direction, i.e. a continued slowdown in the U.S. economy."
    The Trump administration's trade war with China has eroded
business confidence, contributing to the second straight
quarterly contraction in business investment. But, thus far,
that pessimism had not yet reached the U.S. consumer. The trend
may be starting to turn.
    "Maybe the consumer is still playing a role in holding the
economy in, but it's a diminishing role," said Bishop, which he
argues is part of the reason for the Treasury market's retreat
in midmorning trade.
    Bond market liquidity is among the topics investors are
expected to hear the Fed address on Wednesday. A cash shortage
that plagued overnight lending markets in the last month is
likely to flare back up heading into year-end, although measures
taken by the Fed to provide liquidity means the worst of the
strains are probably over.
    The Fed began daily repurchase agreements in mid-September,
after the repo rate for overnight loans surged to 10%, the
highest since the financial crisis and far above the Fed’s then
maximum fed funds target rate of 2.25%.
    
October 30 Wednesday 10:40AM New York / 1440 GMT
                               Price                  
 US T BONDS DEC/d              159-8/32     18/32     
 10YR TNotes DE/d              129-104/256  5/32      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.61         1.639     -0.005
 Six-month bills               1.585        1.6244    -0.013
 Two-year note                 99-194/256   1.6236    -0.018
 Three-year note               99-68/256    1.6304    -0.019
 Five-year note                99-84/256    1.6405    -0.019
 Seven-year note               99-92/256    1.7225    -0.021
 10-year note                  98-92/256    1.8085    -0.026
 30-year bond                  99           2.2965    -0.035
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       18.30        -1.15     
 30-year vs 5-year yield       65.40        -1.85     
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         2.50        -0.25    
 spread                                               
 U.S. 3-year dollar swap        -1.75         0.00    
 spread                                               
 U.S. 5-year dollar swap        -4.00        -0.50    
 spread                                               
 U.S. 10-year dollar swap       -9.00        -0.25    
 spread                                               
 U.S. 30-year dollar swap      -39.25        -0.25    
 spread                                               
 

    

 (Reporting by Kate Duguid; Editing by Angus MacSwan
Editing by Chizu Nomiyama and Jonathan Oatis)
  
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