TREASURIES-U.S. yields rise on data, report on Trump, Warsh meeting

    * Reports on Trump, Warsh meeting raise bets on more hawkish
    * U.S. Midwest factory activity shows resilience, inflation
    * Treasuries set to eke out 0.06 percent return in third

    By Richard Leong
    NEW YORK, Sept 29 (Reuters) - Most U.S. Treasury yields
edged higher on Friday on encouraging data about steady economic
growth and reports U.S. President Donald Trump met with former
Federal Reserve Governor Kevin Warsh about a potential
nomination to head the U.S. central bank.
    In light of his past stance against expansion of the Fed's
balance sheet, Warsh is seen as more hawkish than current Fed
Chair Janet Yellen, analysts said.
    "He's quite a contrast to Yellen," said Gennadiy Goldberg,
interest rates strategist at TD Securities in New York. "She
might be replaced by someone who's relatively more hawkish."
    Consumer spending nudged up 0.1 percent in August but a
gauge of U.S. Midwest factory activity unexpectedly rose in
September despite disruptions stemming from hurricanes Harvey
and Irma.
    Friday's data didn't change traders expectations the Fed
would raise short-term rates in December.
    Longer-dated yields were supported by a deceleration in a
measure of the core rate on personal consumption expenditure,
the Fed's preferred inflation gauge. The annual rise in the core
PCE slowed to 1.3 percent in August, the weakest reading since
November 2015.
    At 11:52 a.m. (1552 GMT), the benchmark 10-year U.S.
Treasury note yield was up 1 basis point at 2.316
percent, while the 30-year yield was down 0.9 basis
point at 2.859 percent.
    The two-year yield was up over 1 basis point at
1.471 percent, not too far from the near nine-year peak it
reached this week.
    For the month, Treasury yields were on track to post their
biggest monthly increase since November during a global market
sell-off following Trump's surprise presidential victory.
    The two-year yield has risen 14 basis points in September;
the 10-year yield is up 20 basis points and the 30-year yield
more than 13 basis points. 
    U.S. government debt is on track to record a slim return of
0.06 percent for the third quarter, bringing its year-to-date
gain to 2.31 percent, according to an index compiled by Barclays
and Bloomberg.
    The $14 trillion sector has experienced a choppy quarter.
Bond yields fell in July and August on soft economic data and
anxiety about tensions between North Korea and the United States
over Pyongyang's nuclear weapons program. 
    They have turned higher in September with the 10-year yield
hitting an 11-week high this week on hints the Fed may raise
rates in December and Trump's roll-out of a tax plan that raised
concerns it may increase the federal deficit and borrowing.

  September 29 Friday 11:53AM New York / 1553 GMT
 US T BONDS DEC7               152-27/32    0-2/32    
 10YR TNotes DEC7              125-108/256  -0-32/25  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.045        1.0622    0.005
 Six-month bills               1.17         1.1932    0.000
 Two-year note                 99-208/256   1.4707    0.016
 Three-year note               99-90/256    1.6006    0.023
 Five-year note                99-210/256   1.9129    0.018
 Seven-year note               99-216/256   2.1492    0.014
 10-year note                  99-108/256   2.3157    0.009
 30-year bond                  97-204/256   2.8601    -0.008
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        25.25         0.50    
 U.S. 3-year dollar swap        23.50         0.00    
 U.S. 5-year dollar swap         7.50         0.00    
 U.S. 10-year dollar swap       -4.50        -0.25    
 U.S. 30-year dollar swap      -33.50        -0.25    
 (Reporting by Richard Leong; Editing by Chizu Nomiyama and
James Dalgleish)
Our Standards:The Thomson Reuters Trust Principles.

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