August 2, 2017 / 1:16 PM / 2 years ago

TREASURIES-Bond yields drop as Treasury gives no hints on new long issue

    * Treasury fails to guide on possible new long bond
    * U.S. yield curve flattest since July 26

    By Karen Brettell
    NEW YORK, Aug 2 (Reuters) - Long-dated debt yields plunged
on Wednesday, and the yield curve flattened to its lowest levels
in a week, after the U.S. Treasury Department gave no
indications about new long-dated issuance in a quarterly
refunding statement.
    The Treasury said it will borrow $96 billion in the third
quarter and has begun to consider how it will increase debt
issuance later in the year to make up for a future decline in
Federal Reserve bond purchases.             
    It gave no further immediate information on its
consideration of introducing ultra-long bonds. In May, the
Treasury said it was studying the possibility of issuing
ultra-long bonds, although its advisory committee had questioned
investor enthusiasm for such a change.
    "They seem to be pushing off the really hard decisions that
they are going to have to make to November," said Aaron Kohli,
an interest rate strategist at BMO Capital Markets in New York.
    Thirty-year Treasury bonds             were last down 4/32
in price to yield 2.85 percent, down from 2.88 percent before
the announcement. 
    The yield curve between five-year notes and 30-year bonds
               flattened to 103 basis points, the lowest level
since July 26.
    Concerns about bumping up against the debt ceiling may have
delayed the Treasury from increasing debt issuance this quarter.
    "In that context it makes sense to not increase sizes when
you think you may have to delay auctions or cut sizes to avoid
running over the limit," Kohli said.
    The Congressional Budget Office has said U.S. lawmakers need
to raise the debt ceiling by mid-October to avoid defaulting on
debt payments.
     The Treasury said on Monday that borrowing is likely to
swell to $501 billion in the fourth quarter.
    The next major focus for investors is Friday's employment
report for July.

 (Editing by Nick Zieminski)
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