October 19, 2016 / 5:55 PM / in a year

TREASURIES-U.S. bonds little changed on supply hedging

* Saudi Arabia launches $17.5 billion global bond deal
    * U.S. housing starts fall to 1-1/2 year low in September
    * Traders await clues from ECB on bond purchase program

 (New throughout, updates prices and market activity, adds
comment from strategist)
    By Richard Leong
    NEW YORK, Oct 19 (Reuters) - U.S. Treasury yields were
little changed on Wednesday as dealers bought and sold
government bonds to hedge the bonds they underwrite, which was
led by Saudi Arabia's first-ever global bond issue.
    Saudi's $17.5 billion multi-part debt offering drew heavy
investor demand as the world's top oil exporter sought to borrow
at historic low yields. 
    Bond dealers typically sell Treasuries to hedge against an
issue they underwrite and then buy them back after it is sold.
    "It's a huge deal. There's some rate-lock selling," said
Mary Ann Hurley, vice president of fixed income with D.A.
Davidson in Seattle. "As the Saudi deal gets put away, you could
see some reversal of that rate-lock selling."
    Benchmark U.S. 10-year Treasury notes were last
up 1/32 in price for a yield of 1.743 percent, down half a basis
point from late on Tuesday. The 10-year yield remained below a
four-month peak of 1.841 percent reached on Monday.
    Two-year yield was flat at 0.803 percent, and the 30-year
yield was unchanged at 2.512 percent.  
    Bond yields swung a bit after data showed a 38 percent
plunge in U.S. apartment construction in September, knocking
overall home building activity to its weakest level in 1-1/2
years. 
    "That number is downright terrible," said Stan Shipley, a
strategist at Evercore ISI in New York.
    Some analysts noted that the report did have a bright spot:
domestic single-family home construction rose 8 percent to its
strongest level in seven months.
    Meanwhile, investors awaited possible clues on the European
Central Bank's thinking on its 1 trillion-plus euro bond
purchase program which may conclude as early as March 2017. 
 
    Traders have been speculating whether the ECB, which will
hold a policy meeting on Thursday, would consider paring its
quantitative easing as Europe keeps struggling with weak growth
and faces Britain's exit from the European Union.
    "The market has come to realize central banks have pretty
much done all they can to help markets," D.A. Davidson's Hurley
said. "Still the ECB will maintain its accommodative stance."
  October 19 Wednesday 1:39PM New York / 1739 GMT
                               Price                  
 US T BONDS DEC6               164-14/32    0-5/32    
 10YR TNotes DEC6              130-88/256   0-12/256  
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.3275       0.3323    -0.016
 Six-month bills               0.4625       0.47      -0.010
 Two-year note                 99-230/256   0.8027    -0.008
 Three-year note               100-34/256   0.9548    -0.008
 Five-year note                99-132/256   1.2262    -0.010
 Seven-year note               99           1.5273    -0.007
 10-year note                  97-204/256   1.745     -0.003
 30-year bond                  94-140/256   2.5108    -0.001
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        22.75         0.25    
 spread                                               
 U.S. 3-year dollar swap        14.25         0.25    
 spread                                               
 U.S. 5-year dollar swap         1.75         0.25    
 spread                                               
 U.S. 10-year dollar swap      -17.25        -0.25    
 spread                                               
 U.S. 30-year dollar swap      -57.25        -0.25    
 spread                                               
 
 (Reporting by Richard Leong; Editing by Chizu Nomiyama and
David Gregorio)

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