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TREASURIES-Geopolitical worries stoke U.S. bond rally | Reuters

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Bonds News | Tue Apr 11, 2017 | 3:25pm EDT TREASURIES-Geopolitical worries stoke U.S. bond rally
* Possible U.S. military moves seen stymieing fiscal stimulus * U.S. 30-year yield touches lowest level since January * U.S. sells $20 billion 10-year notes to soft demand (Recast, update market action, add quote) By Richard Leong NEW YORK, April 11 The U.S. government debt market rallied on Tuesday with the 30-year yield touching near three-month lows as fresh concerns about the French presidential election and possible U.S. military action against Syria and North Korea spurred safe-haven demand for Treasuries. The decline in bond yields was limited by selling among investors and dealers to make room for this week’s $56 billion of coupon-bearing government debt supply, which included $20 billion worth of 10-year notes sold on Tuesday. Trading volume has been muted due to the Passover and upcoming Easter holidays. U.S. financial markets will be closed on Friday in observance of the Good Friday holiday. “The catalyst today was largely geopolitical with heightened concerns about Syria and North Korea,” said Craig Bishop, RBC Wealth Management’s lead strategist for U.S. fixed income in Minneapolis. North Korean state media warned on Tuesday of a nuclear attack on the United States in retaliation to any signs of U.S. aggression amid worries about Pyongyang’s advancing weapons program. The White House also signaled it was open to additional strikes on Syria if its government uses chemical weapons again or deploys barrel bombs. U.S. President Donald Trump ordered a missile strike on a Syrian air base last week in response to an alleged Syrian military attack using poison gas that killed scores of civilians. A new poll in Europe suggested a tightening presidential race in France, stoking worries about an anti-EU candidate – either National Front’s Marine Le Pen or far-left wildcard Jean-Luc Melenchon – winning it all in next month’s runoff. The Trump administration’s focus on Syria and North Korea has led investors to rethink on its commitment on tax cuts and infrastructure spending. “Anything that pushes us away from the possibility of fiscal stimulus is causing a further reversal of the reflation trade,” said Mike Lorizio, head of Treasuries trading at Manulife Asset Management in Boston. Part of the so-called reflation trade that stemmed from Trump’s campaign pledge on fiscal stimulus to bolster the economy was the unloading of longer-dated Treasuries. Traders have stepped back into bonds in recent weeks in the wake of Trump and the Republican-controlled Congress failing to enact healthcare reform. U.S. benchmark 10-year Treasury yields fell 6 basis points to 2.302 percent. The 30-year bond yield was down over 5 basis points at 2.931 percent after touching 2.925 percent which was the lowest since Jan. 17. U.S. yields briefly retreated from session lows after a soft 10-year note auction. Tuesday, April 11 at 1500 EDT (1900 GMT): Price US T BONDS JUN7 153 1-7/32 10YR TNotes JUN7 125-128/256 0-152/256 Price Current Net yield change (pct) (bps) Three-month bills 0.81 0.823 -0.013 Six-month bills 0.9275 0.9448 -0.020 Two-year note 100-8/256 1.2338 -0.040 Three-year note 100-26/256 1.4652 -0.056 Five-year note 100-52/256 1.832 -0.068 Seven-year note 100-24/256 2.1104 -0.071 10-year note 99-148/256 2.298 -0.063 30-year bond 101-104/256 2.9289 -0.057 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap spread 32.25 0.00 U.S. 3-year dollar swap spread 24.50 -2.25 U.S. 5-year dollar swap spread 10.00 0.50 U.S. 10-year dollar swap -4.25 -0.50 spread U.S. 30-year dollar swap -40.25 -0.25 spread (Reporting by Richard Leong, editing by G Crosse)

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