Treasuries Pare Fed-Fueled Gains, Late Bund Selloff Weighs

  • Ten-year yield rises from lowest level since March 6
  • Late ECB Nowotny Comments on Rate Hikes Weighs Into the Close

JPMorgan's Dryden Says It Felt Like a Dovish Rate Hike

Treasuries fell amid steeper declines for U.K. bonds after the Bank of England moved closer to raising rates, and for core euro-zone debt after Dutch voters delivered a setback to the nationalist PVV party. Late comments from Austrian ECB council member Ewald Nowotny pressured bund futures and ensured Treasuries closed near session lows.

Treasuries erased less than half of the gains sparked by Wednesday’s Federal Reserve rate decision. Yields were higher by two to four basis points at 4:15 p.m. in New York, with the 10-year yielding 2.53 percent. It fell nearly 11 basis points Wednesday after the Fed left its median 2017 and 2018 forecasts for the federal funds target unchanged, and touched 2.484 percent overnight, the lowest since March 6.

  • Flows in U.S. rates included buying of put options on 10Y futures and block purchases in 2Y and 5Y futures
  • Goldman Sachs said 10Y yield remains on track to reach 3% by year-end amid an “ongoing cyclical upswing and the Fed’s gradual tightening”
  • 5s30s yield curve at 109.5bp held most of Wednesday’s 5.8bp steepening, biggest since Election Day, which lifted the spread from lowest level since February 2015
  • IG credit issuance resumed after a two-day slowdown; seven offerings were slated, including 10Y $bmarks from Wyndham Worldwide, United Mexican States and Scentre Group
  • U.K. 10Y yield rose as much as 8bp after a BOE policy maker dissented from decision to leave rates unchanged in favor of raising them, and minutes of the Monetary Policy Committee meeting indicated other members were moving toward the same view
  • French 10Y climbed about 4bp, German 10Y by about 3bp, following the Dutch election results
  • Comments from ECB council member Ewald Nowotny during the afternoon session pushed Treasuries lower; Nowotny said the ECB deposit rate could rise before the main rate
  • In eurodollars, open interest changes consistent with liquidation of short April positions post-FOMC, CME data showed; flows were broadly positioned for downside June options, via puts as sentiment among market participants reflected continued downside in the near-term

— With assistance by Edward Bolingbroke

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