September 18, 2018 / 2:33 PM / 8 months ago

TREASURIES-U.S. yields advance on corporate bond supply, rate outlook

    By Gertrude Chavez-Dreyfuss
    NEW YORK, Sept 18 (Reuters) - U.S. Treasury yields rose on
Tuesday, as investors continued to price in more interest rate
increases by the Federal Reserve this year and next and amid a
heavy corporate bond schedule this week.
    U.S. benchmark 10-year and 30-year yields both climbed to
fresh four-month peaks.
    "A big part of the selling in Treasuries is tied to
investment-grade corporate bond supply," said Justin Lederer,
Treasury trader at Cantor Fitzgerald in New York. 
    "The calendar has been pretty large this week. This is
typically Treasury-negative. Investors tend to sell Treasuries
because they want to make room for additional corporate bond
supply," he added.
    Action Economics said in its blog that corporate bond supply
this week totaled about $25 billion this week, after $80 billion
in sales so far this month. Some of the issuers included Nestle
Holdings, Toyota, and General Motors Financial.
    Lederer also said Treasuries have sold off in recent
sessions given expectations of further monetary tightening by
the Fed in 2018 and 2019, more than what the market had
    The rise in U.S. average hourly earnings as seen in the
monthly nonfarm payrolls report for July and August has backed
the view that inflation is picking up, justifying the
continuation of the Fed's tightening policy, analysts said.
    As a result, interest rate futures have priced in two rate
increases in 2018 and also factored in a few more next year,
although the probability for 2019 was still under 50 percent.  
    U.S. government bond investors on Tuesday also shrugged off
news of a tit-for-tat on trade tariffs between the United States
and China.
    U.S. President Donald Trump on Monday announced the
imposition of 10 percent tariffs on about $200 billion worth of
Chinese imports, but sparing smart watches from Apple Inc
 and Fitbit Inc and other consumer products such
as bicycle helmets and baby car seats. 
    He warned that if China takes retaliatory action against
U.S. farmers or industries, "we will immediately pursue phase
three, which is tariffs on approximately $267 billion of
additional imports."
    On Tuesday, China hit back at the United States, announcing
it will levy tariffs on about $60 billion worth of U.S. goods, 
as previously planned, but has reduced the volume of tariffs
that it will collect on the products.
    Treasury yields rose further on the news.
    In midmorning trading, U.S. 10-year yields were last at
3.032 percent, from 3.001 percent late on Monday.
    U.S. 30-year yields were at 3.180 percent, from
Monday's 3.137 percent.
    On the short end, U.S. 2-year yields last traded at 2.790
percent, up from 2.786 percent on Monday. 
      September 18 Tuesday 10:20AM New York / 1420 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             2.1375       2.1791    0.010
 Six-month bills               2.295        2.3542    0.002
 Two-year note                 99-176/256   2.7905    0.004
 Three-year note               99-172/256   2.8652    0.014
 Five-year note                99-54/256    2.9223    0.020
 Seven-year note               98-124/256   2.9931    0.028
 10-year note                  98-168/256   3.0329    0.032
 30-year bond                  96-140/256   3.1797    0.043
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        15.75        -1.00    
 U.S. 3-year dollar swap        14.25        -1.00    
 U.S. 5-year dollar swap        11.50        -0.50    
 U.S. 10-year dollar swap        5.75        -0.50    
 U.S. 30-year dollar swap       -7.75        -1.00    
 (Reporting by Gertrude Chavez-Dreyfuss; editing by Jonathan
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