Treasuries Fall as Haven Bid Ebbs Ahead of French Election

(Bloomberg) -- Treasuries fell Thursday amid steeper declines for most European government bond markets ahead of the French election on Sunday and gains for U.S. stocks and the dollar after U.S. Treasury Secretary Steven Mnuchin said a major tax reform plan will emerge soon.

Yields were higher by two to three basis points at 3:30 p.m. in New York, with the 10-year at 2.24 percent. The climb began during European trading hours, concurrently with the move in European yields reflecting improved poll standings for Emmanuel Macron in the first round of France’s presidential election Sunday. Five-year note futures saw their heaviest volumes of the session during Mnuchin’s comments at a conference in Washington.

• Flows during U.S. trading included large block sale of eurodollar futures and two 10k block trades in TYM7 123 puts
• UST 10Y yield extended its rebound from its YTD low close at 2.168% on Tuesday; German and most other euro-zone 10Y yields rose 4bp-5bp while French 10Y yield declined 2.5bp
• Yields remained higher despite a bigger-than-forecast drop in the April Philadelphia Fed Business Outlook Index and a higher-than-expected weekly initial jobless claims tally
• Preliminary open interest data for Wednesday show increased appetite for bets on higher yields; several eurodollar put strikes saw open interest increases in the 27k to 82k range
• Treasury sold $16b of 5Y TIPS in a new-issue auction that was awarded at -0.049% vs -0.03% WI yield at the bidding deadline; TIPS outperformed nominals into the auction, paring a slide that pushed breakeven rates to YTD lows over past two days