March 2, 2018 / 7:43 PM / 15 days ago

TREASURIES-U.S. yields rise on BOJ's Kuroda remarks, corporate supply

    * BOJ may consider exit strategy if inflation goal is
    * Bond yields pressured by expected huge corporate bond
    * Safe-haven bond holdings pared in wake of Trump's tariff
    * Traders eye weekend elections in Germany, Italy

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, March 2 (Reuters) - U.S. Treasury yields rose on
Friday, with the 10-year yield bouncing back from a three-week
low as the Bank of Japan's chief hinted at a possible exit from
its ultra-easy policies if inflation hits its target in its
fiscal 2019.
    The bond market also came under pressure as investors
prepared a massive flood of corporate bond issuance next week,
led by a $40 billion deal from drugstore chain CVS,
according to IFR, a Thomson Reuters unit.
    The yield rise reversed the prior day's fall tied to a
safe-haven bond market rally in reaction to President Donald
Trump's plan for stiff tariffs on steel and aluminum, which
raised fears of a trade war and surging costs for consumers.

    "Markets don't want trade wars. The markets are pricing in
that risk," said Boris Rjavinski, senior rate strategist at
Wells Fargo Securities in New York. "The news from Japan also
played a role."
    If the BOJ were to move away from its crisis-mode measures,
it would follow in the footsteps of the U.S. Federal Reserve and
other major central banks. 
    "The BOJ's board members expect that prices will reach 2
percent around fiscal 2019. If this happens, there's no doubt
that we will consider and debate an exit," Bank of Japan
Governor Haruhiko Kuroda told parliament.
    The benchmark 10-year Treasury yield  was 2.853
percent, up 5.1 basis points from late on Thursday. It touched a
three-week low of 2.793 percent earlier on Friday.
    The two-year yield hit a two-week low of 2.197
percent before moving to 2.234 percent, up 2.8 basis points from
Thursday, according to Reuters data.
    The spread between five-year and 30-year yields
 was 50.6 basis points, wider than the 50.2 basis
points late on Thursday, Tradeweb data showed.
    Bond yields had fallen late Thursday through overnight
trading on jitters about rising trade tension from Trump's
tariffs on imported steel and aluminum before the BOJ news
reversed their drop. Some analysts said it is unclear whether
the tariff would ignite an all-out trade war.
    "The tariff is all intent purpose just a headline. There's
is even some push-back against it here in the U.S.," said Jason
Celente, senior portfolio manager at Insight Investment in New
    Meanwhile, traders await the outcomes of elections in
Germany and Italy on Sunday.
    Pollsters forecast a hung parliament in Italy, with the
anti-establishment 5-Star Movement to be the biggest single
party. In Germany, Chancellor Angela Merkel's ruling
conservative party faces stiff resistance from the Social
Democrats to be part of an alliance.
    Election results that produce weak governing bodies or ones
with anti-EU bias may spur safe-haven demand for Treasuries,
analysts said.
March 2 Friday 2:34PM New York / 1934 GMT
 US T BONDS JUN8               143-18/32    -25/32    
 10YR TNotes JUN8              120-64/256   -12/32    
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.6125       1.6413    0.012
 Six-month bills               1.8025       1.844     0.005
 Two-year note                 100-8/256    2.2337    0.028
 Three-year note               99-158/256   2.3849    0.033
 Five-year note                100-10/256   2.6165    0.043
 Seven-year note               99-212/256   2.7772    0.048
 10-year note                  99-36/256    2.8497    0.048
 30-year bond                  97-156/256   3.1234    0.037
         YIELD CURVE           Last (bps)   Net       
 10-year vs 2-year yield       61.40        2.00      
 30-year vs 5-year yield       50.60        0.45      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        25.25        -0.75    
 U.S. 3-year dollar swap        21.75        -0.50    
 U.S. 5-year dollar swap         9.50        -0.25    
 U.S. 10-year dollar swap        0.75         0.00    
 U.S. 30-year dollar swap      -18.50         0.50    
 (Reporting by Richard Leong; Editing by Jonathan Oatis and Tom
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