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TREASURIES-Yields head higher a day after hefty fall

·3-min read

(Recasts, updates yields, adds analyst comments) April 16 (Reuters) - U.S. Treasury yields rose on Friday, pulling back from multi-week lows hit during the previous day's rally fueled by Japanese buying, short covering and other factors. The benchmark 10-year Treasury yield was 4.8 basis points higher at 1.5781%. It fell more than 10 basis points on Thursday, the biggest one-day move down since November. Yields touched a low of 1.5280% - well off a 14-month high of 1.776% reached on March 30. "This is a choppy market. Yesterday was definitely seeing some Japanese buying and a lot of short covering," said Justin Lederer, Treasury analyst at Cantor Fitzgerald in New York. "Am I surprised we're backing up? No. These are pretty hefty moves intraday." The yield rise came as expectations of a strong global recovery got a boost from the latest Chinese economic data, which showed record 18.3% first quarter growth for the country. Thursday's Treasury rally came despite robust U.S. retail sales data and a bigger-than-expected drop in initial jobless claims and amid mounting Russia-U.S. tensions. "It's impossible to explain the move yesterday, perhaps it has something to do with a safety bid following U.S./Russia tensions," said Chris Scicluna, head of economic research at Daiwa Capital Markets in London. "But the fact is that higher yields would have bought in buyers, especially from Asia." Foreign selling of Treasuries in February was at its highest since April 2020 with Japan leading the slide in foreign holdings as the end of its fiscal year approached, according to U.S. Treasury data released on Thursday. Analysts have said they expect Japan to recommence purchases in its new fiscal year, which began April 1. The fast deterioration of Japan's economic outlook undoubtedly played a role in pushing U.S. yields lower, according to Christian Gerlach, a founding partner at boutique investment firm Gerlach Associates. "At the same time, the U.S. yield curve is still much steeper than the Japanese one," he said. "Japan's bond carry is suffering, and U.S. carry looks like a good refuge for the time being." The two-year Treasury yield, which typically moves in step with interest rate expectations, was last less than a basis point higher at 0.1632%. A closely watched part of the yield curve that measures the gap between yields on two- and 10-year Treasury notes was last less than a basis point steeper from Thursday's close at 141.66 basis points. Next week will bring auctions for $24 billion of 20-year bonds on Wednesday and $18 billion of five-year Treasury Inflation-Protected Securities on Thursday. The market breathed a sigh of relief this week after the successful auctions of $120 billion of bonds and notes. April 16 Friday 10:38AM New York / 1438 GMT Price Current Net Yield % Change (bps) Three-month bills 0.0175 0.0177 0.003 Six-month bills 0.04 0.0406 0.000 Two-year note 99-237/256 0.1632 0.006 Three-year note 100-26/256 0.3408 0.016 Five-year note 99-160/256 0.8275 0.035 Seven-year note 99-244/256 1.257 0.040 10-year note 95-228/256 1.5781 0.048 20-year bond 95-80/256 2.167 0.060 30-year bond 91-144/256 2.2656 0.057 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 11.50 0.25 spread U.S. 3-year dollar swap 12.25 0.25 spread U.S. 5-year dollar swap 8.25 -0.25 spread U.S. 10-year dollar swap -1.50 0.25 spread U.S. 30-year dollar swap -28.00 -0.25 spread (Reporting by Dhara Ranasinghe in London and Karen Pierog in Chicago; additional reporting by Thyagaraju Adinarayan; editing by Sujata Rao and Marguerita Choy)