Renewable Energy

U.S. yields ease on soft data ahead of Fed decision this week

Credit: REUTERS/Marcelo del Pozo

U.S. Treasury yields fell on Monday in choppy trading, weighed down by softer-than-expected U.S. economic data and persistent pressure from the trade conflict with China, as investors brace for this week's Federal Reserve monetary policy meeting.

By Gertrude Chavez-Dreyfuss

NEW YORK, June 17 (Reuters) - U.S. Treasury yields fell on Monday in choppy trading, weighed down by softer-than-expected U.S. economic data and persistent pressure from the trade conflict with China, as investors brace for this week's Federal Reserve monetary policy meeting.

The Fed is unlikely to cut interest rates this week, but its statement will be analyzed for clues on possible near-term easing moves, analysts said.

Tom di Galoma, managing director at Seaport Global Securities in New York, believes a generally stable U.S. stock market should prevent the Fed from cutting rates on Wednesday.

"There is no doubt U.S. economic data is weakening, however, it does not seem to be as alarming as the market has discounted," he added, noting that Fed funds futures reflected a 75 basis-point cut in the near term.

Monday's sentiment was hurt somewhat by weaker-than-expected U.S. economic data.

The New York Fed's business index showed a record fall this month to its weakest level in more than 2-1/2 years, prompting a fall in U.S. yields. The regional Fed's "Empire State" index on current business conditions tumbled to -8.6 in June from 17.8 in May.

A gauge of U.S. home builder sentiment also fell in June, with the National Association of Home Builders and Wells Fargo saying their index of builder confidence in newly-built, single-family homes fell to 64 from 66 in May.

Action Economics said Monday's weak data was likely the result of "escalating trade war fears and rising concerns over a slowing in global growth."

In afternoon trading, U.S. 10-year note yields fell to 2.085% US10YT=RR from 2.094% late on Friday.

Yields on U.S. 30-year bonds slipped to 2.576% US30YT=RR, from 2.593% on Friday

On the short end of the curve, however, U.S. 2-year yields were up at 1.864% from Friday's 1.851% US2YT=RR.

NatWest Markets, in a research note on Monday, reiterated the consensus call for no interest rate cuts by the Fed on Wednesday.

"While the FOMC (Federal Open Market Committee) may see more downside risks since the last meeting, economic conditions rarely shift that quickly, which is why policymakers generally move gradually," the bank said.

Adding to the pressure on yields was disappointing news coming out of the trade front, said Stan Shipley, fixed income strategist at Evercore ISI in New York.

U.S. Commerce Secretary Wilbur Ross told CNBC on Monday President Donald Trump is ready to proceed with tariffs on the remaining $300 billion in Chinese goods in the absence of a trade deal.

June 17 Monday 2:48PM New York / 1848 GMT

Price

Current Yield %

Net Change (bps)

Three-month bills US3MT=RR

2.1475

2.1886

0.007

Six-month bills US6MT=RR

2.14

2.1988

0.021

Two-year note US2YT=RR

100-127/256

1.8646

0.014

Three-year note US3YT=RR

99-214/256

1.8066

0.011

Five-year note US5YT=RR

100-186/256

1.8457

0.000

Seven-year note US7YT=RR

101-20/256

1.9583

-0.003

10-year note US10YT=RR

102-152/256

2.0838

-0.010

30-year bond US30YT=RR

106-48/256

2.5769

-0.016

DOLLAR SWAP SPREADS

Last (bps)

Net Change (bps)

U.S. 2-year dollar swap spread

3.25

1.75

U.S. 3-year dollar swap spread

2.00

1.50

U.S. 5-year dollar swap spread

-1.25

1.00

U.S. 10-year dollar swap spread

-6.00

1.25

U.S. 30-year dollar swap spread

-32.00

1.25

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Nick Zieminski, Susan Thomas and Cynthia Osterman)

((gertrude.chavez@thomsonreuters.com; 646-223-6322; Reuters Messaging: gertrude.chavez.reuters.com@reuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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