Bonds News

TREASURIES-Yields pare early rise, steepening trades still in vogue

 (Recasts with price move, adds quote, updates prices)
    By Karen Brettell
    NEW YORK, July 13 (Reuters) - Long-dated U.S. Treasury
yields pared an early increase on Monday as stocks came off
their highs, though analysts expect investors to keep putting on
bets that the U.S. yield curve will steepen.
    Yields rose early in the session as stocks climbed, with the
Nasdaq hitting a fresh intraday record high.
    Guy LeBas, chief fixed income strategist at Janney
Montgomery Scott in Philadelphia, said that dollar performance
is driving activity, with demand for U.S. assets increasing with
weakness in the greenback.
    “We moved from a pretty significant sell-off in the morning
(in bonds), to a slight rally by midday, and the sector which
seemed to trigger that was weakness in the dollar,” he said.
    The dollar index measuring the greenback against a basket of
currencies was last down 0.14% on the day at 96.50, after
earlier going as low as 96.27. 
    Investors have been using a recent decline in bond yields as
an opportunity to reset bets that long-dated yields will rise,
and to re-enter trades that benefit from a steeper yield curve.
    “Today what it appears is some people are using the current
opportunity to either re-establish shorts, or re-establish
steepener positions,” said Jon Hill, an interest rate strategist
at BMO Capital Markets in New York.
    Bets that the yield curve will steepen have increased as
Federal Reserve policy holds shorter-dated debt yields near
record lows, while long-dated yields are vulnerable to improving
economic conditions.
    Analysts at Goldman Sachs on Saturday recommended shorting
10-year notes, saying that “without the Fed opening up to
negative rates, (they) don’t really have a lot of room to rally
much further.”
    This comes even as new shutdowns meant to halt the spread of
the coronavirus threaten further economic damage.
    “Mitigation measures used to contain the outbreak are
unlikely to be as far-reaching as those adopted in March/April,
which means that the economic impact of the rising case count is
likely to be significantly smaller,” they said.
    Benchmark 10-year note yields were last up less
than one basis point at 0.637%, after falling to a three-month
low of 0.569% on Friday. The yield curve between two-year and
10-year notes flattened one basis point to 48
basis points.
    Thirty-year bond yields edged up to 1.334%. The
gap between five-year note and 30-year bonds yields
, which is a popular steepening trade, widened one
basis point to 104 basis points.
    July 13 Monday 3:19PM New York / 1919 GMT
 US T BONDS SEP0               179-23/32    -0-3/32   
 10YR TNotes SEP0              139-64/256   0-8/256   
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.135        0.1373    0.005
 Six-month bills               0.1475       0.1497    -0.002
 Two-year note                 99-239/256   0.1589    0.004
 Three-year note               99-208/256   0.1877    0.003
 Five-year note                99-198/256   0.296     -0.002
 Seven-year note               100-32/256   0.4817    -0.002
 10-year note                  99-228/256   0.6365    0.003
 20-year bond                  100-76/256   1.1083    0.004
 30-year bond                  97-240/256   1.334     0.008
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap         6.25         0.25    
 U.S. 3-year dollar swap         4.25         0.25    
 U.S. 5-year dollar swap         3.25         0.00    
 U.S. 10-year dollar swap       -2.00        -0.25    
 U.S. 30-year dollar swap      -46.50         0.25    
 spread (Reporting by Karen Brettell; Editing by Dan Grebler)