US Markets

U.S. yields rise, tracking German bonds, on stimulus talk

Credit: REUTERS/THOMAS WHITE

U.S. Treasury yields climbed to fresh three-week peaks on Tuesday, tracking German bonds, as risk appetite continued to improve amid diminishing U.S.-China trade tensions and expectations of fiscal stimulus measures from Germany, Europe's largest economy.

By Gertrude Chavez-Dreyfuss

NEW YORK, Sept 10 (Reuters) - U.S. Treasury yields climbed to fresh three-week peaks on Tuesday, tracking German bonds, as risk appetite continued to improve amid diminishing U.S.-China trade tensions and expectations of fiscal stimulus measures from Germany, Europe's largest economy.

Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia, said on the margin, market sentiment has turned for now.

"What has really fallen away and taken less tail downside risk off the table was a bit of calming in the trade rhetoric," he added.

Washington and Beijing could be back at the negotiating table sometime this month.

U.S. yields rose for a second straight session, with investors also awaiting a key monetary policy meeting at the European Central Bank on Thursday. Investors expect the ECB to cut interest rates, but may introduce some form of compensation for banks to offset the unwelcome side effects of negative interest rates.

"The real fulcrum event is the ECB meeting and that will drive Bunds, which in turn, have had a massive influence on Treasuries over the course of the last eight weeks or so," LeBas said.

Germany's 30-year government bond yield briefly turned positive on Tuesday, ahead of the ECB meeting and bolstered by possible stimulus measures from its government.

German Finance Minister Olaf Scholz said on Tuesday the government can counter a possible economic crisis by injecting billions of euros into the economy, signaling readiness for a big stimulus package if the economy tips into recession.

In morning trading, U.S. benchmark 10-year note yields US10YT=RR rose to 1.643% from 1.622% late on Monday. Early in the session, 10-year yields hit a three-week high of 1.658%.

Since the beginning of the year, however, 10-year yields have fallen more than 100 basis points.

"There's room for a little bit of bounce," said Janney's LeBas. "There's support around 1.71% in the 10-year."

But this is all temporary, he said. "Twelve months from now, I suspect rates will have revisited the all-time lows."

Yields on 30-year bonds advanced to 2.118% US30YT=RR from 2.098% on Monday, rallying from record lows of 1.905% touched in late August. U.S. 30-year yields also hit a three-week peak of 2.141% earlier in the global session.

At the short end of the curve, U.S. two-year yields rose to 1.603% from Monday's 1.575% US2YT=RR, hitting a three-week high as well of 1.609%.

Later on Tuesday, the U.S. Treasury kicks off $78 billion in auctions this week with the $38 bln three-year note offering.

September 10 Tuesday 10:00 AM New York / 1400 GMT

Price

Current Yield %

Net Change (bps)

Three-month bills US3MT=RR

1.9175

1.9591

0.000

Six-month bills US6MT=RR

1.8325

1.8805

0.010

Two-year note US2YT=RR

99-206/256

1.601

0.026

Three-year note US3YT=RR

99-224/256

1.5437

0.028

Five-year note US5YT=RR

98-200/256

1.5054

0.028

Seven-year note US7YT=RR

98-156/256

1.5865

0.029

10-year note US10YT=RR

99-208/256

1.6455

0.023

30-year bond US30YT=RR

102-228/256

2.119

0.021

DOLLAR SWAP SPREADS

Last (bps)

Net Change (bps)

U.S. 2-year dollar swap spread

-0.25

0.25

U.S. 3-year dollar swap spread

-4.25

0.50

U.S. 5-year dollar swap spread

-6.25

0.00

U.S. 10-year dollar swap spread

-11.25

-0.25

U.S. 30-year dollar swap spread

-41.75

-0.50

(Reporting by Gertrude Chavez-Dreyfuss Editing by Chizu Nomiyama)

((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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