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TREASURIES-U.S. yields slip as euro zone yields hit record lows

Richard Leong

* U.S. private sector adds fewer workers than expected in June-ADP

* Euro zone yields sag to record lows, Lagarde nominated as next ECB chief

* U.S. bond market to close at 2 p.m. EDT, to stay shut Thursday

(Updates market action, adds quote) NEW YORK, July 3 (Reuters) - U.S. Treasury yields fell on Wednesday with 10-year yields hitting their lowest in over 2-1/2 years as euro zone yields tumbled on record lows on bets the European Central Bank's next chief would stay a dovish course to help the euro zone economy. Expectations of more ECB stimulus under Christine Lagarde, who had headed the International Monetary Fund, when she takes over from Mario Draghi in November raised the prospect that global bond yields have room to fall, analysts said.

"Treasuries rallied in sympathy with European bonds on news IMF head Christine Lagarde will be nominated to become the next ECB President as she is expected to pursue dovish monetary policy," said Karl Haeling, head of capital markets sales at LBBW. Reinforcing traders' perception of easy monetary policy was U.S. President Donald Trump's nominations of Christopher Waller and Judy Shelton to the Federal Reserve Board. Both are seen as dovish in their policy stance. At 9:51 a.m. (1351 GMT), benchmark 10-year Treasury yields were down 1.50 basis points at 1.962%. They touched 1.939% earlier as 10-year German bund yields reached a record low at -0.399%. The Fed, ECB and other major central banks are considering whether to embark on lowering interest rates and/or buying more assets to combat sluggish inflation, and slowing growth exacerbated by global trade tensions. In the United States, even its sturdy labor market is showing signs of wobbling. Payroll processor ADP said on Wednesday U.S. companies added 102,000 jobs in June, falling short of the 140,000 forecast by economists polled by Reuters. The prior month's figure was revised up to 41,000 from an originally reported 27,000 increase. Meanwhile, the U.S. trade gap widened a five-month wide in May, which was likely a drag on economic growth in the second quarter. Amid these omens of an economy decelerating, traders fully expect Fed officials would agree to lower U.S. interest rates by at least a quarter point at the end of July to preserve the longest economic expansion on record, based on CME Group's calculation of interest rates futures prices. The U.S. bond market will close early, at 2 p.m. EDT (1800 GMT), on Wednesday, ahead of the U.S. July Fourth holiday on Thursday. July 3 Wednesday 9:50AM EDT/ 1350 GMT Price

US T BONDS SEP9 156-12/32 0-9/3210YR TNotes SEP9 128-48/256 0-12/256Price Current NetYield % Change

(bps)

Three-month bills 2.1575 2.2054 0.000Six-month bills 2.03 2.0794 -0.006Two-year note 99-187/256 1.7636 -0.001Three-year note 100-28/256 1.7116 0.000Five-year note 100-12/256 1.7401 -0.008Seven-year note 100-56/256 1.8415 -0.00910-year note 103-172/256 1.9635 -0.01330-year bond 108 2.4934 -0.015

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 3.25 -0.75

spread

U.S. 3-year dollar swap 1.50 -1.00

spread

U.S. 5-year dollar swap -1.75 -0.75

spread

U.S. 10-year dollar swap -5.00 -0.50

spread

U.S. 30-year dollar swap -32.50 -0.25

spread

(Reporting by Richard Leong)