Yield curve flattest in a decade as Clarida nominated for Fed deputy

(Updates news, yields, table)
By Kate Duguid
NEW YORK, April 16 (Reuters) - The U.S. yield curve reached
it flattest level in over a decade on Monday afternoon as the
White House said President Trump will nominate economist Richard
Clarida as Federal Reserve Vice Chairman.
The spread between five- and 30-year Treasury bonds
fell to 34.6 basis points, the lowest in over 10
years. Expectations of further interest rate increases lifted
the short end of the curve earlier in the day, led by the
two-year government bond, which hit 2.394, its
highest since September 2008.
Clarida's nomination adds another hawkish voice at the
central bank, which already leans in that direction under Fed
Chairman Jerome Powell.
"I don't think he’ll be viewed as being extreme in his views
either on the hawkish or the dovish side – probably tilting on
the hawkish side," said Michael Moran, chief economist at Daiwa
Capital Markets America in New York.
Yield at the short end of the curve have been on the move up
since the April 11 release of minutes from the U.S. central
bank's policy meeting last month showed most Fed officials were
confident inflation is moving toward their desired 2-percent
goal as the economy improves.
The curve flattened as yields at the short end increased
more than yields at the long end, where demand remained steady.
There has been "significant demand at the long end for a long
time now," said Thomas Simons, money market economist at
Jefferies & Co in New York.
The rising median age of U.S. citizens, as reported by the
U.S. Census Bureau, has driven the steady demand for
longer-dated debt, a preferred investment of insurance companies
and pension funds.
That has allowed demand to be "almost unrelated to
fundamental factors. Over the past couple of weeks you’ve had
the CBO putting out the budget deficit projections – the
long-term view is really quite dark," said Simons.
Prices on Treasury bonds across maturities, which are a
global safe-haven investment, did fall modestly on Monday as
short-term demand remained muted, suggesting the market has
grown less concerned about possible retaliation for the U.S.-led
air strikes in Syria on Saturday.
Yields, which move inversely to prices, rose overnight and
through Monday morning, despite the weekend's turmoil in which
U.S., British and French forces fired more than 100 missiles on
The yield on the 10-year benchmark government bond
was last up at 2.832 percent from its last close at
2.828 percent.

April 16 Monday 2:58PM New York / 1858 GMT
US T BONDS JUN8 145-16/32 0-3/32
10YR TNotes JUN8 120-120/256 -0-4/256
Price Current Net
Yield % Change
Three-month bills 1.7225 1.7536 -0.005
Six-month bills 1.92 1.9652 0.005
Two-year note 99-194/256 2.3773 0.008
Three-year note 99-150/256 2.5194 0.011
Five-year note 99-42/256 2.6812 0.005
Seven-year note 99-4/256 2.7816 0.003
10-year note 99-80/256 2.8303 0.002
30-year bond 99-116/256 3.0278 -0.008

Last (bps) Net
U.S. 2-year dollar swap 30.75 -0.75
U.S. 3-year dollar swap 24.25 -0.75
U.S. 5-year dollar swap 13.00 -0.25
U.S. 10-year dollar swap 3.00 -0.50
U.S. 30-year dollar swap -13.50 -0.25

(Reporting by Kate Duguid; Editing by David Gregorio and Nick

First Published: 2018-04-16 16:32:00
Updated 2018-04-16 21:10:31

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