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* U.S. 10-year yields hit highest since March
* 10-year inflation breakeven rate highest since February
* U.S. 10-year TIPS supply fetches strongest bid since 2014
* Two-year yields highest since September 2008
By Kate Duguid
NEW YORK, Jan 18 - Yields on U.S. 10-year notes reached a 10-month high on Thursday after China reported fourth-quarter growth that accelerated for the first time in seven years.
China's gross domestic product grew 6.8 percent in the October to December period from a year earlier. An export recovery helped the country post an annual acceleration in growth, defying concerns that intensifying curbs on industry and credit would hurt expansion. After a week abutting 2.60 percent, the 10-year U.S. Treasury yield passed that mark to hit its highest level since March 2017.
Also pushing yields higher was Apple Inc's announcement that it would open a new campus as part of a $30 billion U.S. investment plan and will make a $38 billion one-time tax payment on its overseas cash. Apple has parked much of its overseas profit in debt, holding about $52.5 billion in Treasury bonds and $150.7 in corporate securities. The concern is not simply that Apple would sell Treasuries to pay these bills, but that a number of multinationals could do the same.
"It's not like it's a large chunk of cash coming back," said Subadra Rajappa, head of U.S. rates strategy at Societe Generale in New York. "But the question is, are other corporations going to do the same - is Apple just the first?"
Also on Thursday, the U.S. government sold $13 billion in 10-year Treasury Inflation-Protected Securities (TIPS) to the strongest demand since 2014 at a yield of 0.548 percent, the highest in two years. Primary dealers purchased just 11 percent, a smaller-than average share. TIPS are designed to protect investors from the negative effects of inflation, so strong demand for the security indicates the market expects inflation to rise.
"Only 10 percent went to the Street, and the rate that came out was aggressive, which tells me that people believe that inflation is finally beginning to rear its ugly head," said Mary Ann Hurley, vice president of fixed income trading at D.A. Davidson in Seattle.
At 3:13 p.m. (2013 GMT), the 10-year inflation breakeven rate , or the yield gap between 10-year TIPS and regular 10-year Treasury notes, was 2.09 percent, its highest level since February 2017.
At 3:28 p.m. (2013 GMT), 10-year Treasury yields were 2.626 percent, its highest since March 14. Two-year yields were 2.048 percent, after hitting 2.060 percent earlier in the day, the highest since September 2008.
January 18 Thursday 3:27PM New York / 2027 GMT
PriceUS T BONDS MAR8 149-7/32 -1-3/32 10YR TNotes MAR8 122-100/256-0-68/25
6
PriceCurrent Net
Yield % Change
(bps)Three-month bills 1.4151.4397-0.005Six-month bills 1.5951.63020.000Two-year note 99-172/256 2.04750.004Three-year note 99-128/256 2.17360.011Five-year note 98-162/256 2.41970.026Seven-year note 98-20/2562.55350.03710-year note 96-200/256 2.62370.04630-year bond 97-4/256 2.90010.052
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps) U.S. 2-year dollar swap20.50 0.50spread U.S. 3-year dollar swap19.25 0.75spread U.S. 5-year dollar swap 5.75 0.75spread U.S. 10-year dollar swap1.00 0.50spread U.S. 30-year dollar swap-16.75 0.00spread
(Reporting by Kate Duguid; Editing by Susan Thomas and Lisa Shumaker)
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