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U.S. yields slide on weak data ahead of Fed decision this week

Credit: REUTERS/Marcelo del Pozo

U.S. Treasury yields slipped on Monday in choppy trading, weighed down by softer-than-expected U.S. economic data and persistent pressure arising 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 slipped on Monday in choppy trading, weighed down by softer-than-expected U.S. economic data and persistent pressure arising 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 the U.S. economic data is weakening, however, it does not seem to be as alarming as the market has discounted due to Fed funds reflecting a 75 basis-point cut near-term," he added.

Monday's sentiment has been darkened somewhat by weak U.S. economic data and persistent pressure emanating from the trade conflict with China.

Data on the New York Fed's business index showed a record fall this month, its weakest level in more than 2-1/2 years, prompting an earlier 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.

In addition, a gauge of U.S. home builder sentiment 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 midday trading, U.S. 10-year note yields fell to 2.082% US10YT=RR from 2.094% late on Monday.

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

On the short end of the curve, U.S. 2-year yields were down at 1.856% from Monday's 1.851% US2YT=RR.

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.

Despite Monday's negative sentiment, Evercore's Shipley said the odds are low for an easing this week.

"The Fed will probably set the conditions where they could ease in July," said Shipley. "That is probably tied to inflation and economic growth. So you're going to need a strong snapback in jobs, retail sales, and inflation and it doesn't look like you're going to get that."

June 17 Monday 11:58AM New York / 1558 GMT

Price

Current Yield %

Net Change (bps)

Three-month bills US3MT=RR

2.145

2.186

0.004

Six-month bills US6MT=RR

2.135

2.1936

0.016

Two-year note US2YT=RR

100-131/256

1.8565

0.006

Three-year note US3YT=RR

99-222/256

1.7958

0.000

Five-year note US5YT=RR

100-196/256

1.8374

-0.009

Seven-year note US7YT=RR

101-36/256

1.9487

-0.012

10-year note US10YT=RR

102-160/256

2.0803

-0.014

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

2.75

1.25

U.S. 3-year dollar swap spread

1.50

1.00

U.S. 5-year dollar swap spread

-2.00

0.25

U.S. 10-year dollar swap spread

-7.25

0.00

U.S. 30-year dollar swap spread

-33.50

-0.25

(Reporting by Gertrude Chavez-Dreyfuss Editing by Nick Zieminski and Susan Thomas)

((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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