June 7, 2018 / 7:49 PM / 2 months ago

TREASURIES-Trade worries weigh on U.S. yields in wild session

    * Concerns on trade push into forefront before G7 summit
    * Futures prices, volume briefly surges; no consensus on
move 
    * U.S. jobless claims unexpectedly fall last week
    * U.S. to sell $68 bln coupon-bearing debt next week

 (Updates after price, volume spike, adds graphic)
    By Richard Leong
    NEW YORK, June 7 (Reuters) - U.S. Treasury yields fell on
Thursday in a volatile session, reversing the prior day's
sell-off, as safe-haven demand rose on tensions between the
United States and its major trade partners ahead of the Group of
Seven summit.
    U.S. President Donald Trump stuck to his tough stance
against top allies ahead of the summit on Friday and Saturday in
Charlevoix, Quebec, after imposing tariffs on steel and aluminum
imports from Canada, Mexico and the European Union last week.

    Trump's stand rekindled fears of a trade war that could harm
economic growth worldwide, analysts said.
    "Trade tension has been ramping back up. The synchronized
global growth story which we have been speaking about since last
year has frayed a bit," said Ilya Gofshteyn, global macro
strategist at Standard Chartered in New York.
    Market activity had been modest before a spike in volume in
the  futures market coincided with a surge in bond prices in
afternoon trading. 
    At 1:34 p.m. (1734 GMT), the volume of 10-year Treasury
futures began to jump, quadrupling in two minutes to
46,972 contracts. The price on the September 10-year T-note
contract added 11/32 to reach a session high of 120 before
ending at 119-19/32, up 10/32 on the day, according to CME Group
 data.
    There was no market consensus behind the brief price and
volume surge. Traders cited a range of explanations, including a
slump in emerging market currencies, an erroneous order, or "fat
finger" trade; and technical buying after the 10-year yield
broke below the 2.92 percent level. 
    In the cash market, benchmark 10-year Treasury notes' yield 
 was down 4.5 basis points at 2.930 percent after
hitting a four-day low at 2.884 percent. It reached a near
two-week high at 2.994 percent earlier on Thursday.   
    ECB, FED 
    Trade concerns overshadowed speculation about the outcome of
the European Central Bank's debate next week about ending the
expansion of its 2.55 trillion-euro ($3 trillion) bond purchase
program in September.
    Traders also waited for the U.S. Federal Reserve to signal
how many times it would raise interest rates for the rest of
2018 as domestic labor conditions tighten and inflation moves
closer to its 2 percent goal.
    "If the ECB is not blinking on Italy, why should the Fed?"
said Aaron Kohli, interest rates strategist at BMO Capital
Markets in New York, said of Italy's recent struggle to form a
government.
    Earlier on Thursday, the Labor Department said first-time
filings for jobless benefits unexpectedly declined last week to
222,000.
    Traders widely expect the U.S. central bank to raise key
overnight borrowing costs by a quarter point to a 1.75 percent
to 2.00 percent range next Wednesday.
    U.S. yields have retraced some of last week's steep drop
tied to political turmoil in Italy. They had moved in step with
their European counterparts on anxiety Italian ruling parties
would implement economic policies that balloon the country's
indebtedness and challenge rules to stay in the euro zone.
    "With Italy more in the rear-view mirror, the view is that
euro zone is still on relatively solid footing," Gofshteyn said.
    The 10-year German Bund yield edged up 0.6 basis
point to 0.468 percent following a 9 basis-point jump the day
before, which was its biggest one-day rise in nearly a year.  
    This week's heavy supply of higher-yielding corporate bonds
has supported Treasury yields, analysts said.
    So far this week, companies raised about $33.15 billion in
the investment-grade bond market, according to IFR, a unit of
Thomson Reuters.
    Meanwhile, the U.S. Treasury Department said on Thursday it
would sell a combined $68 billion in three-year, 10-year and
30-year securities next week.
June 7 Thursday 3:41PM New York / 1941 GMT
                               Price                  
 US T BONDS SEP8               143-11/32    30/32     
 10YR TNotes SEP8              119-168/256  12/32     
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.8925       1.9279    -0.013
 Six-month bills               2.065        2.1156    -0.015
 Two-year note                 100-4/256    2.4917    -0.028
 Three-year note               100          2.6247    -0.030
 Five-year note                99-234/256   2.7685    -0.044
 Seven-year note               99-252/256   2.8774    -0.048
 10-year note                  99-140/256   2.9278    -0.047
 30-year bond                  100-232/256  3.0784    -0.052
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       43.40        -1.80     
 30-year vs 5-year yield       30.80        -0.30     
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        27.50         1.00    
 spread                                               
 U.S. 3-year dollar swap        22.25         0.25    
 spread                                               
 U.S. 5-year dollar swap        13.50         0.50    
 spread                                               
 U.S. 10-year dollar swap        5.50         0.00    
 spread                                               
 U.S. 30-year dollar swap       -7.75         0.75    
 spread                                               
 

    
 (Reporting by Richard Leong; Editing by Meredith Mazzilli,
Richard Chang and Jonathan Oatis)
  
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