(Recasts, updates yields, adds analyst comments)
By Karen Pierog and Ross Kerber
CHICAGO/BOSTON, May 1 - U.S. Treasury yields moved a little
higher on Friday as the market looked ahead to next week's
projection for U.S. borrowing in the second quarter to finance
enormous stimulus efforts aimed at combating the economic
fallout of the coronavirus outbreak.
The benchmark 10-year yield was last up 1.4
basis point at 0.6386%.
"It's hard to envision someone putting on a big position
ahead of potential risk events next week," said Tom Simons,
money market economist at Jefferies in New York.
He said the Treasury's projection for second-quarter
borrowing "is just going to be astronomical."
"There's a lot of uncertainty how Treasury is going to
handle the financing issues because the total number they have
to come up with is so big," said Simons.
The market will also be focused on the April employment
report due in a week, he said, adding: "We already know the data
is going to be horrendous, but it's a question if the market is
particularly interested in the details."
The small movement in yields on Friday also suggested the
bond market was not too concerned with the prospect the Trump
Administration might cancel some debt held by China, as a
diplomatic lever. A top administration economic adviser denied a
Washington Post report the idea was discussed.
In theory, the prospect of canceled debt would make U.S.
Treasuries less safe and would drive up their yields, said
Andrew Richman, director of fixed income strategies for
Truist/SunTrust Advisory Services. “You would have less demand
for that debt because it would get riskier,” he said.
Instead, Richman said, investors seemed to be waiting for
more definitive news on whether the pandemic’s economic impact
would get better or worse. “We’re just going on the push-pull of
CV news,” he said.
Yields rose a bit earlier in the day after the Institute for
Supply Management reported the nation's manufacturing activity
plunged to an 11-year low in April as the coronavirus outbreak
hurt supply chains. The index of national factory activity
dropped to a reading of 41.5 last month from 49.1 in March.
The two-year U.S. Treasury yield, which typically
moves in step with interest rate expectations, was 1.4 basis
points higher at 0.2018%.
A closely watched part of the U.S. Treasury yield curve
measuring the gap between yields on two- and 10-year Treasury
notes, seen as an indicator of economic
expectations, was at 43.30 basis points, less than a basis point
lower than at Thursday's close.
In repurchase agreement (repo) operations on Friday, no bids
were submitted for an overnight operation, while all $21.4
billion of bids were accepted for a one-day repo.
May 1 Friday 1:51PM New York / 1851 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 0.1075 0.1093 0.003
Six-month bills 0.1225 0.1243 0.010
Two-year note 99-217/256 0.2018 0.014
Three-year note 99-250/256 0.258 0.021
Five-year note 100-8/256 0.3687 0.024
Seven-year note 99-196/256 0.5342 0.017
10-year note 108-40/256 0.6386 0.014
30-year bond 117-196/256 1.2806 0.010
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 12.75 0.00
spread
U.S. 3-year dollar swap 7.50 -0.75
spread
U.S. 5-year dollar swap 4.00 -1.00
spread
U.S. 10-year dollar swap -0.50 -1.25
spread
U.S. 30-year dollar swap -46.25 0.00
spread
(Reporting by Karen Pierog in Chicago and Ross Kerber in
Boston; Editing by Paul Simao and Dan Grebler)
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