Markets News

TREASURIES-U.S. yields advance, tracking global bonds, ahead of supply

(Adds impact of incoming debt supply, comment; updates prices)

* U.S. Treasury to sell $26 billion in 2-year notes on Tuesday

* German and UK bond yields rise

* Markets brace for three key events over next two weeks

By Gertrude Chavez-Dreyfuss

NEW YORK, Oct 24 (Reuters) - U.S. Treasury yields lurched higher on Monday, in line with a rise in global bond yields and gains in U.S. stocks, with traders seeing little action ahead of next week’s Federal Reserve policy meeting.

U.S. yields, which move inversely to prices, also benefited from incoming government debt supply this week in U.S. two-year, five-year, and seven-year notes, analysts said. On Tuesday, the U.S. Treasury will sell $26 billion in two-year notes.

Traders tend to sell Treasuries to make way for fresh supply, and over the past year, demand at these auctions has been generally strong.

U.S. Treasury 30-year bond yields rebounded from more than one-week lows, while short-term yields hit session highs following gains in British and German bonds. Yields on benchmark German Bunds rallied from three-week lows, while UK bonds rose from one-week troughs.

“Treasuries are moving as a factor of other things and not necessarily a result of factors intrinsic to the bond market,” said Bruno Braizinha, interest rates strategist at Societe Generale in New York.

“This week we’re also calling for a bearish bias in Treasuries because of supply on the front end and the belly of the curve (five-year and seven-year notes),” he added.

On Wednesday, the U.S. Treasury will auction $34 billion in five-year notes, and on Thursday, $28 billion in seven-year notes.

In late trading, 10-year Treasury notes were down 7/32 in price to yield 1.764 percent, up from 1.74 percent late Friday. The yield reached a four-month peak at 1.841 percent early last week.

U.S. 30-year bonds fell 16/32 in price, yielding 2.517 percent, up from Friday’s 2.492 percent. Earlier in the session, 30-year yields hit a more than one-week low.

Shorter-dated yields were also higher on expectations the Fed would raise rates at its December meeting. U.S. two-year note yields were at 0.844 percent, up nearly 2 basis points from Friday’s 0.827 percent.

Interest rates futures implied traders saw more than a 70 percent chance the Fed would hike rates in December, according to the CME Group’s FedWatch.

This week’s auctions precede a triple whammy of event risks over the next two weeks consisting of next week’s meeting of the Fed’s Federal Open Market Committee, the U.S. non-farm payrolls report for October, and the U.S. presidential election.

“There will probably be a hawkish tilt to the November FOMC meeting, which would allow the market to price the December hike fully,” said Societe’s Braizinha. “So we’re bearish the front end and we like being short two-year notes on this move.” (Reporting by Gertrude Chavez-Dreyfuss; Editing by Dan Grebler and Leslie Adler)