February 27, 2019 / 8:34 PM / 7 months ago

TREASURIES-Yields rise ahead of fourth-quarter U.S. GDP report

 (Recasts; updates yields; adds analyst quote)
    By Kate Duguid
    NEW YORK, Feb 27 (Reuters) - U.S. Treasury yields rose in
afternoon trade ahead of Thursday's fourth-quarter gross
domestic product figure, despite the growth slowdown suggested
by Wednesday's report that the U.S. goods trade deficit widened
significantly in December. 
    The Commerce Department said the goods trade gap jumped 12.8
percent to $79.5 billion in December as slowing global demand
and a strong dollar weighed on exports. Exports declined 2.8
percent and imports rose 2.4 percent.             
    The federal government on Thursday will report U.S. economic
growth for the fourth quarter of 2018. The 10-year Treasury
yield             typically serves as a proxy for investors'
overall view of the health of the U.S. economy, so the 5.7 basis
point rise on Wednesday morning was unexpected given the trade
data.
    "Everyone is a little surprised by the move in New York,"
said Justin Lederer, Treasury analyst at Cantor Fitzgerald. 
    He said the rise in rates was likely driven by technical
factors. "Sellers have emerged. There have been some sizeable
block-future trades in 10-years and (30-year) bonds and a lot of
Europe is backing up with big activity in (German) Bunds.
Positioning may be off given the way auctions were received
yesterday and ahead of a big month-end extension tomorrow."
    Strong demand at new note auctions this week saw direct
bidders, a group that includes bond dealers and large investment
managers, on Tuesday purchase their largest share of seven-year
notes at auction in almost five years.              
    Tom di Galoma, managing director at Seaport Global Holdings
in New York, further explained that the selloff in Treasuries
was likely on the back of a similar move in European government
bonds. The benchmark 10-year German Bund             hit a
three-week high of 0.168 percent. 
    Italian government bond yields also rose sharply on
Wednesday, pushed higher by disappointing economic data, a debt
auction and criticism from the European Commission over the
state of Italy's economy.             
    "There are some days where the price action itself is the
main story, and Wednesday certainly fit in that category. At the
risk of over-using the term, prices can change more than facts
as the fundamental landscape remains intact," wrote Ian Lyngen,
head of U.S. rates strategy at BMO Capital Markets.  
    The yield curve was steeper as two-year yields           
rose at a slower rate than 10-year yields. The two-year yield
moves in step with market forecasts of interest rate policy, but
Wednesday's move seemed disconnected from Federal Reserve
Chairman Jerome Powell's remarks to Congress on Wednesday, in
which he said the U.S. central bank would stop shrinking its $4
trillion balance sheet later this year.             

 (Reporting by Kate Duguid in New York
Editing by James Dalgleish)
  
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