TREASURIES-Brexit extension drives risk appetite, lifts U.S. yields

Kate Duguid

NEW YORK, Oct 28 (Reuters) - U.S. Treasury yields rose on Monday morning after the European Union agreed to a three-month flexible delay of Britain's departure from the European Union. The extension of the Oct. 31 deadline comes amid uncertainty about Brexit, with British politicians no closer to reaching a consensus on how, when or even if the divorce should take place. Allowing Britain more time to come to a consensus lowers chances of a no-deal exit, reducing uncertainty and with it, investor demand for safe-haven investments like U.S. government bonds. The benchmark 10-year yield was last up 5.7 basis points to 1.858%, the biggest move across maturities. With "the risk-positive impulse from the Brexit extension, (it) makes sense that rates are coming back higher. From a technical lens, we broke a couple pretty significant support points, which suggests that 10s could sell off further from here. In particular, we're watching that 1.90% level," said Jon Hill, U.S. rate strategist at BMO Capital Markets. Boris Johnson, who became prime minister in July by pledging to deliver Brexit on Oct. 31, was compelled to request a postponement after he was defeated in parliament over the sequencing of the ratification of his deal. In the United States, at the conclusion of its two-day policy meeting set for Wednesday, the Federal Open Market Committee is widely expected to cut interest rates by 25 basis points for the third time this year. Trader expectations of an October cut were 94.1% on Monday, compared with 89.8% a week prior, according to CME Group's FedWatch tool. The two-year Treasury yield, which reflects investor expectations of changes in interest-rate policy, was up 3.7 basis points to 1.664%. But some analysts are expecting a hawkish statement to accompany the cut, suggesting the bank will pause rate cuts after October. "The base case is something like a hawkish cut, by which they cut one more time, that sets a 75-basis-point parallel to the late 90s. And then they try to set up being on pause from here. I don't expect them to seriously commit to not cutting again. Instead they'll try to keep flexibility. But at least moderate expectations for a fourth cut in December," said Hill. In spite of some sell-off due to Brexit, the Treasury market on the whole was quiet ahead of the FOMC as well as the U.S. employment report on Friday, with volume at the lowest since Oct. 14, which many people in the United States take as a holiday.

October 28 Monday 10:29AM New York / 1429 GMT Price

US T BONDS DEC/d 158-11/32 -33/3210YR TNotes DE/d 129-28/256 -14/32Price Current NetYield % Change


Three-month bills 1.6425 1.6765 0.002Six-month bills 1.6375 1.6783 0.015Two-year note 99-173/256 1.6655 0.039Three-year note 99-38/256 1.6708 0.047Five-year note 99-34/256 1.6816 0.055Seven-year note 99-12/256 1.7704 0.05610-year note 97-236/256 1.8579 0.05730-year bond 97-236/256 2.3473 0.054YIELD CURVE Last (bps) Net

Change (bps)

10-year vs 2-year yield 19.10 1.6030-year vs 5-year yield 66.40 -0.20


Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 2.00 -0.75


U.S. 3-year dollar swap -1.75 -0.50


U.S. 5-year dollar swap -3.50 -0.50


U.S. 10-year dollar swap -8.75 -0.25


U.S. 30-year dollar swap -38.75 -0.25


(Reporting by Kate Duguid; editing by Jonathan Oatis)