November 27, 2017 / 4:00 PM / 20 days ago

TREASURIES-Yields rise after U.S. housing data; curve flattest in 10 years

    By Gertrude Chavez-Dreyfuss
    NEW YORK, Nov 27 (Reuters) - Treasury yields rose on Monday
after data showed U.S. new home sales surged to their highest in
10 years, reinforcing expectations the Federal Reserve will
raise interest rates next month and a few more times in 2018. 
    U.S. 30-year bond yields rallied from a roughly 2-1/2 month
low after the data's release.
    The report showed new home sales increased 6.2 percent to a
seasonally adjusted annual rate of 685,000 units last month, the
highest since October 2007. New home sales surged 18.7 percent
on a year-on-year basis in October and have increased for three
straight months.
    "This series is a lot more volatile than existing home
sales, so we take this with a healthy pinch of salt, but this
data continue to support the notion that the housing market is
in relatively good shape," said Aaron Kohli, interest rates
strategist at BMO Capital Markets in New York.
    The data further boosted the outlook for U.S. interest rate
increases. 
    The Federal Reserve has raised borrowing costs twice this
year and is widely anticipated to boost rates again next month.
It has forecast three rate hikes in 2018.
    Increased expectations for interest rate hikes have pushed
the yield curve to its flattest in a decade.
    The gap between U.S. 2-year note and U.S. 10-year note
yields contracted to 56.30 basis points, the
tightest since October 2007. The gap was last at 58.30 basis
points.
    The difference in five-year and 30-year yields narrowed to
69.90 basis points.
    "We haven't seen much to challenge the view that we expect
the curve to continue to flatten on a longer horizon once the
ostensibly risk-positive events of this week - tax plan vote
later this week - have passed," Kohli said.
    The U.S. Congress returns from the Thanksgiving holiday to
reconcile the House and Senate tax bills. 
    In mid-morning trading, the 10-year Treasury yield
 was up slightly at 2.345 percent, from 2.34 percent
late on Friday.
    U.S. two-year yields, which climbed to a
nine-year peak last week, rose to 1.761 percent, from 1.748
percent on Friday. 
    U.S. 30-year bond yields rose to 2.772 percent,
from Friday's 2.761 percent. Earlier in the session, 30-year
yields touched 2.738 percent, the lowest since mid-November.
    
      November 27 Monday 10:50AM New York / 1550 GMT
                               Price                  
 US T BONDS DEC7               154-8/32     0         
 10YR TNotes DEC7              124-252/256  0-4/256   
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.2475       1.2686    -0.002
 Six-month bills               1.42         1.4498    0.003
 Two-year note                 99-130/256   1.7613    0.013
 Three-year note               99-178/256   1.856     0.006
 Five-year note                99-174/256   2.0686    0.004
 Seven-year note               100-28/256   2.2327    0.000
 10-year note                  99-52/256    2.3401    0.000
 30-year bond                  99-172/256   2.7661    0.005
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        16.75        -0.75    
 spread                                               
 U.S. 3-year dollar swap        17.00        -0.50    
 spread                                               
 U.S. 5-year dollar swap         6.50        -0.25    
 spread                                               
 U.S. 10-year dollar swap       -0.75        -0.50    
 spread                                               
 U.S. 30-year dollar swap      -23.00        -1.25    
 spread                                               
 
 (Reporting by Gertrude Chavez-; Editing by Dan Grebler)
  

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