April 18, 2018 / 3:09 PM / 3 months ago

TREASURIES-Range-bound trade across bond maturities despite Wall St's gains

    By Kate Duguid
    NEW YORK, April 18 (New York) - - Trading across U.S.
government bond maturities was range-bound on Wednesday, with
yields little changed in spite of gains in the equity market. 
    A sell-off at the front end of the curve caused two-year
Treasury yields to rise from 2.386 percent at
Tuesday's close to 2.423 on Wednesday morning. That move
continued the flattening trend of the yield curve, as 10-year
yields and 30-year yields both rose less
than 3 basis points. 
    The bigger moves at the front end were still minor, however,
despite gains on Wall Street on strong corporate earnings. Bond
yields are correlated with equity prices, as money will move out
of fixed income when investments in stocks become more
attractive. But despite the stock market's move higher this
week, yields have not risen proportionally. 
    "The reaction in the bond market seems to be a lot more
muted relative to the big moves we've seen in the equities rally
in the past few sessions. Generally, the bond market seems to be
under-reacting to both the sell-off and the rally," said Subadra
Rajappa, head of U.S. rates strategy at Societe Generale in New
York. 
    The S&P 500 Index was up 11 basis points on Wednesday
morning, bolstered by strong earnings from Morgan Stanley
among others, which rose 3 percent after it reported a 40
percent jump in quarterly profit, driven by its trading
business. 
    Although disappointing earnings from IBM and a
sell-off in semiconductor stocks weighed on the Dow Jones
Industrial Average and the Nasdaq, both indexes
were still up 1.2 percent and 2.1 percent this week
respectively. 
    "I think bonds are resisting selling off too much because of
the fact that global bond yields are still very low and that
spread between Bunds and Treasuries is close to its widest
levels, and that’s anchoring 10-year Treasury yields somewhat,"
said Rajappa. 
    The spread between U.S. and German benchmark government
bonds is -232.00 basis points, near the
multi-year low of -237.30 hit on March 16. "We really need to
see a rise in global yields for Treasury yields to rise
meaningfully from here," said Rajappa.
    The gap between short- and long-dated Treasuries is at its
lowest in over a decade, which suggests the market anticipates
the Federal Reserve will continue to raise interest rates in
2018. The spread between two- and 10-year Treasuries
 is at 41.8 basis points, and the spread between
five- and 30-year yields is at 29.8 basis points,
both below Tuesday's close. 
    
April 18 Wednesday 10:59AM New York / 1459 GMT
                               Price                  
 US T BONDS JUN8               145-19/32    -0-14/32  
 10YR TNotes JUN8              120-76/256   -0-68/25  
                                            6         
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.765        1.7975    0.005
 Six-month bills               1.95         1.9968    0.000
 Two-year note                 99-172/256   2.4231    0.037
 Three-year note               99-116/256   2.5662    0.041
 Five-year note                99-4/256     2.7138    0.038
 Seven-year note               98-220/256   2.8067    0.035
 10-year note                  99-52/256    2.8433    0.029
 30-year bond                  99-188/256   3.0134    0.015
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        28.25        -0.50    
 spread                                               
 U.S. 3-year dollar swap        21.75        -1.50    
 spread                                               
 U.S. 5-year dollar swap        11.50        -0.50    
 spread                                               
 U.S. 10-year dollar swap        2.75        -0.50    
 spread                                               
 U.S. 30-year dollar swap      -12.75         0.00    
 spread                                               
 







 (Reporting by Kate Duguid; Editing by Dan Grebler)
  
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