TREASURIES-Inch higher in Asia, take cue from JGBs
TOKYO, May 28 (Reuters) - U.S. Treasuries were steady to a bit higher in Asia on Wednesday, supported by a slight decline in Japanese government bond yields.
Treasuries gained a little respite after falling on Tuesday as traders prepared for auctions of $30 billion in two-year notes later on Wednesday and $19 billion of five-year notes on Thursday.
"During Tokyo trading hours, U.S. Treasuries have recently seemed to take cues from moves in Japanese government bonds," said Junji Kojima, senior deputy manager for Sompo Japan Insurance Inc's global securities investment department.
The benchmark 10-year note rose around 1/32 in price to yield 3.917 percent US10YT=RR, down around 0.5 basis point from late U.S. trading on Tuesday.
The two-year note was steady in price to yield 2.501 percent US2YT=RR, slipping about 1.5 basis points from late New York.
The yield curve steepened slightly as a result, with the two-year/10-year yield spread widening to around 141.5 basis points. The spread had shrunk to roughly 137 basis points last Thursday, the lowest in around four months.
Japanese government bond yields mostly inched lower, with the benchmark 10-year JGB yield dipping 0.5 basis point to 1.755 percent JP10YTN=JBTC.
The U.S. yield curve has flattened recently due to market expectations for the Federal Reserve to raise interest rates later this year, coupled with caution ahead of the auctions of two-year and five-year notes, said Sompo Japan's Kojima.
But the yield curve seems unlikely to flatten much more, Kojima said, adding that concern about the outlook for U.S. economic growth could prompt the Fed to wait longer than the market now expects before raising interest rates.
U.S. short-term interest rate futures show that investors now widely expect the Fed to raise interest rates by 25 basis points to 2.25 percent by year-end FEDWATCH.
"While there is some concern about inflation, the economy will probably remain weak for a while and could end up moving in an L-shaped pattern," Kojima said, adding that the U.S. economy could see a period of below-potential growth. (Editing by Chris Gallagher)
