Treasuries Trim Declines From French Election as Buyers Emerge

(Bloomberg) -- Treasuries declined, while paring much of the day’s loss, after results from the first round of French elections pointed to pro-growth centrist Emmanuel Macron becoming the country’s next president.

The benchmark 10-year U.S. yield rose about two basis points to 2.27 percent at 11:39 a.m. in New York, after increasing nearly eight basis points to the highest since April 11. Treasuries grinding higher in New York hours, supported by real money buying five- and 10-year notes, according to a New York-based trader. Treasuries trailed steeper losses in European sovereign debt, with 10-year German yields soaring eight basis points to 0.33 percent. Stocks gained in Europe and the U.S.

Macron will face National Front candidate Marine Le Pen in the second round of the French elections, with a poll released by OpinionWay on Monday showing he’d win 61 percent of the vote.

• Short end led the selloff, flattening the yield curve; 5s30s spread narrowed to about 111bp and touched lowest since April 12
• TIPS break-evens widened; 5Y break-even jumped as much as 6.5bp to 1.84%
• Rise in UST yields spurred dip-buying, and overnight flows included a $350k/DV01 block trade in Ultra 10Y futures
• Treasury to auction 2Y/5Y/7Y maturities beginning Tuesday with $26b of 2Y notes
• Other items to watch: month-end index extensions that take effect April 28, the need for a federal budget resolution to avert a government shutdown at the end of the week, and Trump administration progress toward goals of health-care and tax reform
• A complete proposal for an overhaul of the U.S. tax system probably won’t be ready until June, President Trump’s budget director said
• Futures positioning data released Friday showed covering of speculative short positions, especially in eurodollar and 5Y contracts

--With assistance from Edward Bolingbroke

To contact the reporters on this story: Brian Chappatta in New York at bchappatta1@bloomberg.net, Elizabeth Stanton in New York at estanton@bloomberg.net.

To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net, Mark Tannenbaum