September 18, 2018 / 7:24 PM / a month ago

TREASURIES-U.S. yields gain on corporate bond supply, rate view

    * China imposes tariffs on U.S. goods; little impact on
Treasuries
    * Corporate bond supply weighs on Treasuries
    * U.S. Fed seen hiking a few more times in 2018, 2019

 (Adds analyst comment, updates prices)
    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.
    News of a tit-for-tat on trade tariffs between the United
States and China had little impact on the U.S. government bond
market on Tuesday as benchmark 10-year and 30-year yields both
climbed to fresh four-month peaks.
    The rise in U.S. average hourly earnings in the monthly
nonfarm payrolls report for July and August has backed the view
that inflation is picking up, justifying the continuation of the
Federal Reserve's tightening policy, analysts said.
    Jim Vogel, interest rates strategist, at FTN Financial in
Memphis, Tennessee noted that real yields on 10-year Treasuries
are now forming a triple top above 0.90 percent with the same
type of rapid sell-off that formed on previous two occasions,
one in May and another in late July. 
    "The common denominator in all three was that Fed tightening
was front and center for bond traders undistracted by other
global developments," Vogel said.
    Analysts also cited heavy corporate bond supply as one
factor for Tuesday's Treasuries' selling.
    "The (corporate bond) calendar has been pretty large this
week," said Justin Lederer, Treasury trader at Cantor Fitzgerald
in New York. "This is typically Treasury-negative as investors
tend to sell Treasuries because they want to make room for
additional corporate bond supply."
    Action Economics said in its blog that corporate supply this
week was around $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.
    Trade tension lingered, however, on Tuesday, but was hardly
a factor in the Treasury market.
    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.
    On Tuesday, China hit back at the United States, announcing
tariffs on about $60 billion worth of U.S. goods, but reducing
the volume of tariffs that it will collect on the products.

    Treasury yields rose further on the news.
    In afternoon trading, U.S. 10-year yields were last at 3.044
percent, from 3.001 percent late on Monday.
    U.S. 30-year yields were at 3.193 percent, from
Monday's 3.137 percent.
    U.S. 2-year yields, meanwhile, last traded at 2.798 percent
, up from 2.786 percent on Monday.
    
      September 18 Tuesday 2:52PM New York / 1852 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2.1325       2.174     0.005
 Six-month bills               2.2975       2.3568    0.005
 Two-year note                 99-172/256   2.7988    0.013
 Three-year note               99-166/256   2.8735    0.023
 Five-year note                99-40/256    2.9342    0.032
 Seven-year note               98-104/256   3.0057    0.041
 10-year note                  98-144/256   3.044     0.043
 30-year bond                  96-76/256    3.193     0.056
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        16.00        -0.75    
 spread                                               
 U.S. 3-year dollar swap        14.50        -0.75    
 spread                                               
 U.S. 5-year dollar swap        11.50        -0.50    
 spread                                               
 U.S. 10-year dollar swap        5.50        -0.75    
 spread                                               
 U.S. 30-year dollar swap       -7.75        -1.00    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; editing by Jonathan
Oatis and Chizu Nomiyama)
  
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