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Yields rise with oil prices; curve flattens on inflation expectations

Yields rise with oil prices; curve flattens on inflation expectations

NEW YORK: US Treasury yields rose on Monday as a jump in oil prices to near $50 a barrel stifled demand for safe-haven US government debt and the yield curve flattened as weak US manufacturing data suggested long-term inflation could be subdued.

After touching the lowest level since April 11 in overnight trading following soft retail sales and production data from China and a weak wholesale prices reading from Japan, yields retraced their losses and rose in morning US trading, boosted by the move higher in crude oil futures.

“A lot of the overnight data has been kind of weak and people have just roundly ignored it,” said Aaron Kohli, interest rates strategist at BMO Capital Markets in New York.

“Everyone was just focusing on crude this morning.” Oil prices rose more than 3 percent on Monday as a disruption to supplies from Nigeria and an improved forecast from long-time oil bear Goldman Sachs pushed prices to their highest since November 2015.

While Treasury yields rose across the board, the curve flattened to the lowest level in two months as Treasuries with maturities between two and seven years rose more than those with longer-dated maturities.

A weaker-than-expected manufacturing survey from the New York Federal Reserve suggested slow inflation in the US could be a long-term rather than short-term trend.

“The long term suggests a scenario where growth will be slower and lower,” Kohli said, “and that’s how the curve is really expressing that view.”

The two-year, 10-year yield curve hit its flattest level since March 4 in early trading, flattening to 93.7 basis points, from 95 basis points late on Friday. The five-year, 30-year yield curve hit its lowest since April 27.

Benchmark 10-year notes fell 11/32 in price to yield 1.743 percent, up from 1.705 percent on Friday. Yields for two-year Treasury notes rose to 0.778 percent, near the highest level in two weeks.

Copyright Reuters, 2016

Courtesy : BRecorder



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