TREASURIES-Prices tumble as expectations of British EU exit drop
(Adds data, updates prices)
* Polls boost expectations that Britain will stay in EU
* Fed rate policy likely to come back into focus
By Karen Brettell
NEW YORK, June 23 (Reuters) - U.S (Other OTC: UBGXF - news) . Treasury prices fell on
Thursday on growing confidence that Britain will vote to remain
in the European Union, as opinion polls indicated that the
campaign to stay in the EU was in the lead.
A telephone survey by polling firm ComRes, conducted for the
Daily Mail newspaper and ITV (LSE: ITV.L - news) television before voting commenced,
showed the "Remain" campaign had a 48 percent to 42 percent lead
over "Leave."
Another poll before voting began, by YouGov (LSE: YOU.L - news) for The Times
newspaper, showed "In" leading "Out" by 51 percent to 49
percent. A previous YouGov poll for The Times had put "Out"
ahead.
Crucially, undecided voters not captured in the polls are
seen as more likely to vote to stay in the EU than to risk the
unknown consequences of leaving.
That has boosted riskier assets, including stocks, and
reduced demand for U.S. bonds, which had rallied on Wednesday on
growing fears of a British exit.
"There's a very, very strong presumption that a lot of the
undecideds are going to break towards the status quo," said
Aaron Kohli, interest rate strategist at BMO Capital Markets in
New York.
Benchmark 10-year notes fell 15/32 in price to
yield 1.74 percent, up from 1.69 percent late on Wednesday.
Yields fell to an almost four-year low of 1.52 percent last
Thursday as fears over a British exit from the EU accelerated.
If Britain votes to remain in the EU, U.S. bond investors
are likely to turn attention back to when the Federal Reserve is
likely to next raise interest rates.
Unexpectedly weak jobs growth in May led investors to push
back rate increase expectations to later in the year, with
traders pricing in only an 8 percent chance of an increase at
the Fed's July meeting.
Improving economic data could lead investors to reevaluate
this view with shorter-dated notes, which are highly sensitive
to rate hikes, likely to bear the brunt of any weakness.
"If they vote to stay you will twos and threes repricing,
because the market will start looking towards July," said Kohli.
Data on Thursday showed that the number of Americans filing
for unemployment benefits fell last week to near a 43-year low,
suggesting labor market resilience.
Manufacturing activity rose to a three-month high in early
June while new single-family home sales dropped last month from
a more than eight-year high in April.
(Editing by Nick Zieminski)