U.S. yields pressured by Canada rate outlook, China…

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By Gertrude Chavez-Dreyfuss NEW YORK, Jan 22 – U.S. Treasury yields fell on Wednesday, adding to weakness seen the previous session, after the Bank of Canada held interest rates steady and opened the door for possible easing amid an economic slowdown, rekindling worries about global growth. U.S. two-year, 10-year and 30-year yields hit fresh two-week lows after the BoC headlines. Treasuries typically react little to monetary policy news from its North American neighbor, but have become more sensitive to global factors the last few months. The BoC, which has been on the sidelines since October 2018, maintained its key overnight interest rate at 1.75% as expected, but said recent economic data had been mixed and noted “unexpectedly soft” indicators of consumer confidence and spending. It also slashed its forecast for fourth-quarter annualized growth to 0.3% from 1.3% in October. “Going into this year, the belief was that global easing was over and things were looking better for the entire world,” said Jim Vogel, senior rates strategist at FHN Financial in Memphis, Tennessee. “For Canada to sort of change its outlook fairly quickly opens up the possibility that easing could occur elsewhere too,” he added. Safe-haven Treasuries were also supported by worries about the new coronavirus from China, which recalled memories of another deadly virus, Severe Acute Respiratory Syndrome (SARS) that killed nearly 800 people between 2002 and 2003. Deaths from China’s new flu-like virus rose to 17 on Wednesday, heightening global fears of contagion from an infection suspected to have come from animals. Financial markets though were encouraged by China’s response. In contrast with its secrecy over SARS, China has this time given regular updates to try to head off panic as millions travel at home and abroad for the Lunar New Year. State broadcaster CCTV has also shown footage of doctors in quarantine gear in Wuhan. In late morning trading, U.S. 10-year yields fell to 1.762%, from 1.769% late on Tuesday. Earlier in the session, 10-year yields fell to two-week lows of 1.759%. Yields on U.S. 30-year bonds were at 2.211%, down from 2.231% on Tuesday. Thirty-year yields also fell to two-week troughs of 2.207%. On the short end of the curve, U.S. two-year yields fell to two-week lows of 1.522% from Tuesday’s 1.532%. They were last at 1.524%. The yield curve flattened for a second straight session on Wednesday after steepening last week, amid cautious market sentiment with respect to the Chinese coronavirus and the BoC’s dovish turn. The spread between the two-year and 10-year note yields narrowed to 23.59 basis points US2US10=TWEB. January 22 Wednesday 10:37AM New York / 1537 GMT Price Current Net Yield % Change (bps) Three-month bills 1.5225 1.5539 -0.002 Six-month bills 1.52 1.5573 -0.003 Two-year note 100-48/256 1.5262 -0.006 Three-year note 99-236/256 1.5269 -0.005 Five-year note 100-218/256 1.57 -0.003 Seven-year note 100-112/256 1.6829 0.000 10-year note 99-224/256 1.7638 -0.005 30-year bond 103-136/256 2.2125 -0.018 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 7.00 -0.25 spread U.S. 3-year dollar swap 4.00 -0.25 spread U.S. 5-year dollar swap 1.00 -0.50 spread U.S. 10-year dollar swap -4.50 -0.50 spread U.S. 30-year dollar swap -30.75 0.00 spread (Editing by Nick Macfie)

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