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TREASURIES-U.S. bond yields little changed on supply hedging
October 19, 2016 / 8:10 PM / a year ago

TREASURIES-U.S. bond yields 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
    * Fed's Beige Book: signs of rising wage pressure
    * Traders await clues from ECB on bond purchase program

 (Adds Saudi debt sale)
    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 securities they underwrote, which was
led by Saudi Arabia's first-ever global bond issue.
    Saudi Arabia's $17.5 billion multipart debt offering, the
largest ever from an emerging-market government, drew heavy
demand as the world's top oil exporter sought to borrow at
historic low yields.  
    Other notable deals on Wednesday included a $3.5 billion
offering from U.S. bank Wells Fargo, according to IFR, a
Thomson Reuters unit. 
    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," Mary Ann
Hurley, vice president of fixed income with D.A. Davidson in
Seattle, said of the Saudi bond issue. "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 down
1/32 in price to yield 1.752 percent, up fractionally from late
Tuesday. The 10-year yield bounced in a 4 basis point trading
range and held below a four-month peak of 1.841 percent reached
on Monday.
    Bond yields swung a bit after data showed a 38 percent
tumble in U.S. apartment construction in September, knocking
overall home-building activity to its weakest in 1-1/2 years.
 
    "That number is downright terrible," said Stan Shipley, a
strategist at Evercore ISI in New York.
    Some analysts noted the report had a bright spot: domestic
single-family home construction rose 8 percent to its strongest 
in seven months.
    The Federal Reserve's latest Beige Book, commenting on
current economic conditions and released on Wednesday,
acknowledged moderate U.S. growth, with signs of rising wage
pressure in September. 
    Meanwhile, investors awaited possible clues on the European
Central Bank's thinking on its 1 trillion-plus euro bond
purchase program that may conclude as early as March 2017. 
 
    Traders have been speculating over 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 3:47PM New York / 1947 GMT
                               Price                  
 US T BONDS DEC6               164-10/32    0-1/32    
 10YR TNotes DEC6              130-76/256   0         
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.3325       0.3374    -0.011
 Six-month bills               0.4625       0.47      -0.010
 Two-year note                 99-230/256   0.8027    -0.008
 Three-year note               100-30/256   0.9601    -0.003
 Five-year note                99-122/256   1.2344    -0.002
 Seven-year note               98-244/256   1.5345    0.000
 10-year note                  97-196/256   1.7485    0.000
 30-year bond                  94-144/256   2.51      -0.002
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        23.25         0.75    
 spread                                               
 U.S. 3-year dollar swap        14.25         0.25    
 spread                                               
 U.S. 5-year dollar swap         1.50         0.00    
 spread                                               
 U.S. 10-year dollar swap      -17.25        -0.25    
 spread                                               
 U.S. 30-year dollar swap      -57.25        -0.25    
 spread                                               
 
 (Editing by Jeffrey Benkoe and Will Dunham)

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