January 18, 2018 / 8:43 PM / 9 months ago

TREASURIES-Benchmark yields at 10-month high on strong China data

 (Adds quotes and prices)
    * U.S. 10-year yields hit highest since March
    * 10-year inflation breakeven rate highest since February
    * U.S. 10-year TIPS supply fetches strongest bid since 2014
    * Two-year yields highest since September 2008

    By Kate Duguid
    NEW YORK, Jan 18 - Yields on U.S. 10-year notes reached a
10-month high on Thursday after China reported fourth-quarter
growth that accelerated for the first time in seven years. 
    China's gross domestic product grew 6.8 percent in the
October to December period from a year earlier. An export
recovery helped the country post an annual acceleration in
growth, defying concerns that intensifying curbs on industry and
credit would hurt expansion.
    After a week abutting 2.60 percent, the 10-year U.S.
Treasury yield passed that mark to hit its highest
level since March 2017. 
    Also pushing yields higher was Apple Inc's
announcement that it would open a new campus as part of a $30
billion U.S. investment plan and will make a $38 billion
one-time tax payment on its overseas cash.
    Apple has parked much of its overseas profit in debt,
holding about $52.5 billion in Treasury bonds and $150.7 in
corporate securities. The concern is not simply that Apple would
sell Treasuries to pay these bills, but that a number of
multinationals could do the same. 
    "It’s not like it’s a large chunk of cash coming back," said
Subadra Rajappa, head of U.S. rates strategy at Societe Generale
in New York. "But the question is, are other corporations going
to do the same - is Apple just the first?"
    Also on Thursday, the U.S. government sold $13 billion in
10-year Treasury Inflation-Protected Securities (TIPS) to the
strongest demand since 2014 at a yield of 0.548 percent, the
highest in two years. Primary dealers purchased just 11 percent,
a smaller-than average share.
    TIPS are designed to protect investors from the negative
effects of inflation, so strong demand for the security
indicates the market expects inflation to rise. 
    "Only 10 percent went to the Street, and the rate that came
out was aggressive, which tells me that people believe that
inflation is finally beginning to rear its ugly head," said Mary
Ann Hurley, vice president of fixed income trading at D.A.
Davidson in Seattle. 
    At 3:13 p.m. (2013 GMT), the 10-year inflation breakeven
rate, or the yield gap between 10-year TIPS and
regular 10-year Treasury notes, was 2.09 percent, its highest
level since February 2017. 
    At 3:28 p.m. (2013 GMT), 10-year Treasury yields were 2.626
percent, its highest since March 14. Two-year yields
were 2.048 percent, after hitting 2.060 percent earlier in the
day, the highest since September 2008.
    
    January 18 Thursday 3:27PM New York / 2027 GMT
                               Price                  
 US T BONDS MAR8               149-7/32     -1-3/32   
 10YR TNotes MAR8              122-100/256  -0-68/25  
                                            6         
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.415        1.4397    -0.005
 Six-month bills               1.595        1.6302    0.000
 Two-year note                 99-172/256   2.0475    0.004
 Three-year note               99-128/256   2.1736    0.011
 Five-year note                98-162/256   2.4197    0.026
 Seven-year note               98-20/256    2.5535    0.037
 10-year note                  96-200/256   2.6237    0.046
 30-year bond                  97-4/256     2.9001    0.052
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        20.50         0.50    
 spread                                               
 U.S. 3-year dollar swap        19.25         0.75    
 spread                                               
 U.S. 5-year dollar swap         5.75         0.75    
 spread                                               
 U.S. 10-year dollar swap        1.00         0.50    
 spread                                               
 U.S. 30-year dollar swap      -16.75         0.00    
 spread                                               
 


 (Reporting by Kate Duguid; Editing by Susan Thomas and Lisa
Shumaker)
  
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