bias@ NEW YORK, March 8 (Reuters) - The yield on the U.S. benchmark government bond rose on Thursday, tracking its German counterpart as the European Central Bank dropped its easing bias, but its move was more muted, compressing the spread between the two. Germanys 10-year bond yield rose following President Mario Draghi's announcement the central bank would drop a long-standing pledge to increase bond buying if needed. The possibility of increased supply hit U.S. bond prices, driving the yield on the 10-year Treasury up 1.5 basis points to a session high of 2.892 percent. "It does hammer home the theme that liquidity withdrawal is something that central banks are participating in globally, not just the Fed," said Gene Tannuzzo, senior portfolio manager at Columbia Threadneedle Investments in Minneapolis. Keeping its broader policy unchanged, the ECB said it could still extend its 2.55 trillion euro ($3.16 trillion) bond purchase scheme beyond September if needed. But it omitted a reference to bigger purchases, a signal that it remains on track to end a three-year-old stimulus scheme before the end of 2018.
But the U.S. yield move was muted in comparison to the German one, as traders hesitated ahead of Friday's payrolls data release. The jump in Bund yields compared with the Treasuries' move helped shrink the spread between the two. "If we see the ECB stepping back, we see the German curve start to come up, and we should continue to see that compression between U.S. yields and lower-yielding European yields. Thats playing out today and I think will continue over the course of the year," said Tannuzzo. The spread between German and U.S. benchmark bond yields hit a session high of -218.60 above yesterday's close at -221.0. That could continue to rise if European bond yields are driven up by the ECB tightening monetary policy. Yields on both benchmark bonds retraced some of their early gains during the subsequent news conference with Draghi, during which he noted that euro zone inflation remained stubbornly low, and said "Our mandate is in terms of price stability. Victory cannot be declared yet." The 10-year yield was last at 2.854 percent, above yesterday's close at 2.883 percent. The two-year yield was last at 2.246 percent below its last close at 2.254 percent. The 30-year yield was last at 3.117 percent, 3.4 basis points below Wednesday's close.
March 8 Thursday 10:29AM New York / 1529 GMT Price
US T BONDS JUN8 143-30/32 0-27/32 10YR TNotes JUN8 120-64/256 0-56/256 Price Current Net Yield % Change
Three-month bills 1.6525 1.6824 -0.003 Six-month bills 1.8375 1.8804 0.000 Two-year note 100-2/256 2.2458 -0.008 Three-year note 99-144/256 2.4048 -0.016 Five-year note 100-2/256 2.6232 -0.026 Seven-year note 99-208/256 2.7797 -0.029 10-year note 99-32/256 2.8516 -0.031 30-year bond 97-208/256 3.1128 -0.038
DOLLAR SWAP SPREADS
Last (bps) Net
U.S. 2-year dollar swap 29.25 0.75
U.S. 3-year dollar swap 24.50 0.75
U.S. 5-year dollar swap 12.50 0.75
U.S. 10-year dollar swap 2.25 0.25
U.S. 30-year dollar swap -16.50 0.75
(Reporting by Kate Duguid Editing by Susan Thomas)