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U.S. yields rise on profit-taking ahead of holiday weekend

Credit: REUTERS/FAYAZ AZIZ

U.S. Treasury yields rose on Friday after sharp falls the in previous session, with investors booking profits after a surge in government bond prices and ahead of a long holiday weekend.

By Gertrude Chavez-Dreyfuss

NEW YORK, May 24 (Reuters) - U.S. Treasury yields rose on Friday after sharp falls the in previous session, with investors booking profits after a surge in government bond prices and ahead of a long holiday weekend.

Some analysts said Friday's decline in bond prices could have also been fueled by comments from President Donald Trump late Thursday. He said U.S. complaints against Chinese telecommunications giant Huawei Technologies <HWT.UL> might be resolved within the framework of a U.S.-China trade deal.

The market is closed on Monday for Memorial Day.

"We had hit the lows in yields in about two years, so there's probably some profit-taking going on," said Tom Simons, economist, at Jefferies & Company in New York. "If anything, toward the end of trading yesterday, we didn't get more bad news that could have fostered the bids a little bit more."

On Thursday, U.S. 30-year bond yields dropped to 17-month lows, while those on benchmark 10-year notes fell to their lowest level since October 2017. U.S. 2-year yields, on the other hand, sagged to their weakest since February 2018.

Analysts said Trump's comments provided some optimism about an eventual trade agreement.

But the outlook for Treasuries and other sovereign bonds could partly be determined by what happens in Britain and its acrimonious attempt to leave the European Union.

British Prime Minister Theresa May said on Friday she would quit after failing to deliver Brexit, setting up a race to replace her.

Former foreign minister Boris Johnson has appeared to be the favorite to replace May and was first out of the blocks to say Britain should be prepared to leave the EU without a deal to force the bloc to offer a "good deal."

Johnson's emergence and his "no-Brexit" stance could be supportive for Treasuries overall, Jefferies' Simons said.

In morning trading, U.S. 10-year note yields rose to 2.332% US10YT=RR from 2.296% late on Thursday.

Yields on U.S. 30-year bonds advanced to 2.76% US30YT=RR, from 2.732% on Thursday.

On the short end of the curve, U.S. 2-year yields were up at 2.164% from Thursday's 2.129% US2YT=RR.

U.S. yields came off their highs after data showed new orders for U.S.-made capital goods fell more than expected in April.

Orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, dropped 0.9% last month as demand weakened almost across the board.

"This suggests that business equipment investment growth has remained unusually weak in the second quarter even before the potential hit to business confidence from the renewed flare-up in trade tensions," said Andrew Hunter, senior U.S. economist at Capital Economics in London.

"With core inflation running well below target, the case for Fed rate cuts is continuing to build."

May 24 Friday 10:17AM New York / 1417 GMT

Price

Current Yield %

Net Change (bps)

Three-month bills US3MT=RR

2.3125

2.3576

-0.007

Six-month bills US6MT=RR

2.325

2.3911

-0.003

Two-year note US2YT=RR

100-40/256

2.1662

0.037

Three-year note US3YT=RR

100-12/256

2.1085

0.040

Five-year note US5YT=RR

100-144/256

2.1289

0.042

Seven-year note US7YT=RR

100-240/256

2.228

0.046

10-year note US10YT=RR

100-96/256

2.3326

0.037

30-year bond US30YT=RR

102-84/256

2.7603

0.028

DOLLAR SWAP SPREADS

Last (bps)

Net Change (bps)

U.S. 2-year dollar swap spread

4.00

-0.50

U.S. 3-year dollar swap spread

2.50

-0.25

U.S. 5-year dollar swap spread

-0.25

-0.25

U.S. 10-year dollar swap spread

-5.50

0.25

U.S. 30-year dollar swap spread

-28.50

0.75

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Dan Grebler)

((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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