Wall Street rally lifts U.S. bond yields to 3-week peaks

* U.S. factory output rises more than forecast in December
* Hopes for end to U.S.-China trade spat boosts Wall Street
* U.S. consumer sentiment sags to weakest since Trump's win
* U.S. stock, bond markets to close Monday

(Repeats to additional subscribers)
By Richard Leong
NEW YORK, Jan 18 (Reuters) - U.S. Treasury yields climbed to
three-week highs on Friday as investors piled back into Wall
Street on hopes Washington and Beijing were moving to end their
trade dispute as well as on stronger-than-expected data on
manufacturing output.
Bond yields increased for a second week as 10-year yields
climbed further from the near one-year low on Jan. 4.
"It's a belief the thaw between the U.S. and China is
growing so that's stabilizing markets. The risk-on environment
is weighing on bonds here," said Craig Bishop, lead strategist
of U.S. fixed income strategies at RBC Wealth Management in
Minneapolis.
The improved outlook on trade came in the aftermath of a
Wall Street Journal report that U.S. Treasury Secretary Steven
Mnuchin was considering lifting some or all tariffs imposed on
Chinese imports. The Treasury denied Mnuchin floated such a
recommendation.
The S&P 500 index was up 1.10 percent, while the Dow
was 1.15 percent higher and the Nasdaq was up
0.81 percent.
The yield on benchmark 10-year Treasury notes
hit a three-week peak, last trading at 2.781 percent, 3.4 basis
points above Thursday's close.
The 10-year yield climbed about 8 basis points this week,
its biggest weekly rise since the week of Nov. 2, according to
Refinitiv data.
Treasury yields have risen partly on competition from
higher-yielding corporate bonds. Companies have raised $25.7
billion through investment-grade debt sales this week, according
to IFR.
Worries about a slowing U.S. economy eased following a
Federal Reserve report that showed industrial production grew
0.3 percent in December as manufacturing output surged, more
than what analysts had forecast.
But consumer sentiment deteriorated in early January to its
weakest since October 2016, before Donald Trump's presidential
victory, according to a University of Michigan survey.

The federal government shutdown, which is in its 28th day,
remains a concern for investors as well as consumers.
Given the recent batch of mixed data and volatility in the
stock market, Fed officials have signaled they are in no hurry
to raise interest rates again after a rate hike last month.
Interest rates futures implied traders saw about a 27
percent chance of a rate increase by year-end, up from 19
percent a week earlier but down from 40 percent a month ago, CME
Group's FedWatch program showed.
Earlier Friday, New York Fed President John Williams said
the U.S. central bank must be patient and guided by data when
deciding whether to raise interest rates. San
Francisco Fed chief Mary Daly said she was leaning toward
pausing rate hikes for a while.
U.S. financial markets will be closed on Monday for the
Martin Luther King Jr. holiday.
January 18 Friday 3:04PM New York / 2004 GMT
Price
US T BONDS MAR9 144-19/32 -14/32
10YR TNotes MAR9 121-44/256 -11/32
Price Current Net
Yield % Change
(bps)
Three-month bills 2.355 2.4012 -0.009
Six-month bills 2.4375 2.5013 -0.004
Two-year note 99-202/256 2.6118 0.048
Three-year note 99-182/256 2.6013 0.049
Five-year note 100-8/256 2.618 0.049
Seven-year note 99-144/256 2.6944 0.046
10-year note 102-236/256 2.7824 0.035
30-year bond 105-112/256 3.0943 0.018
YIELD CURVE Last (bps) Net
Change
(bps)
10-year vs 2-year yield 16.90 -1.65
30-year vs 5-year yield 47.50 -2.70
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 15.25 -1.50
spread
U.S. 3-year dollar swap 11.75 -1.00
spread
U.S. 5-year dollar swap 8.75 -0.25
spread
U.S. 10-year dollar swap 3.25 0.00
spread
U.S. 30-year dollar swap -18.25 0.75
spread



(Reporting by Richard Leong; Editing by Chris Reese and Andrea
Ricci)


2019-01-18 22:45:52

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