April 25, 2018 / 7:19 PM / a year ago

TREASURIES-Supply concerns lift U.S. 10-year yield above 3 pct

    * U.S. 5-year auction catches solid investor demand
    * Traders buzz over "gigantic" U.S., German curve trades
    * U.S. 30-year yield climbs to 2-month peaks

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, April 25 (Reuters) - The benchmark U.S. Treasury
10-year yield edged above 3 percent on Wednesday as jitters
about growing federal borrowing spurred more selling in the U.S.
government bonds, paving the path for it to visit levels not
seen since July 2011.
    Increased government borrowing, together with inflation
concerns due to rising commodity prices and bets on further rate
increases from the Federal Reserve, have touched off the current
bond market sell-off, analysts said.
    The expected surge in government debt issuance stemmed from
the revenue shortfall as a result of the massive tax overhaul
last December and increased spending linked to the budget
agreement inked in February.
    "Supply is clearly increasing with a rising deficit. We are
seeing some signs of inflation. Those things are very negative
for bonds," said Don Ellenberger, head of multisector strategies
at Federated Investors in Pittsburgh.
    Two huge trades in the U.S. Treasury and German debt futures
grabbed traders' attention. 
    At 11:29 a.m. (1529 GMT), a market player bought 100,174
contracts in 5-year T-note futures for June delivery at a
price of 100-17/32 and sold 63,887 contracts in June 10-year
T-notes at 119-3/32, CME Group data showed.
    Shortly after, a trade involving the sale of 65,362
contracts of 5-year German Bobl futures at a price of
about 130.60 and purchase of 29,145 contracts of 10-year Bund
futures at a price of about 157.80 transacted,
according to traders and EUREX data.
    "These are gigantic trades," said Greg Adamsick, director of
global futures and options at RCM Alternatives in Chicago.
    The U.S. curve steepener trade is likely based on
expectations that longer-dated yields would rise further with
supply and inflation, while the German curve flattener trade is
underpinned by the view of slowing euro zone growth and the
European Central Bank will unlikely raise rates until the second
half of 2019, traders said.
    On Wednesday, the U.S. Treasury Department sold $17 billion
in 2-year floating-rate notes following by a $35 billion auction
of 5-year securities to solid investor demand. They followed
mediocre demand for $32 billion of a new 2-year issue on
    The latest 5-year issue fetched a yield of
2.837 percent, the highest yield at a 5-year auction since
September 2008.
    The Treasury will complete this week's supply with a $29
billion auction of 7-year notes on Thursday.
    It is unclear where bond yields would peak as their rise has
unnerved Wall Street and holders of risky assets.
    "This market is not ready to capitulate," said Jim Vogel,
interest rate strategist at FTN Financial in Memphis, Tennessee.
    The 10-year yield was nearly 5 basis points
higher than late Tuesday at 3.030 percent. If it were to climb
above 3.04 percent, which was its peak in January 2014, it will
likely test levels last seen in the summer of 2011, analysts
    The 5-year Treasury yield was up 3 basis points
at 2.838 percent after rising to 2.854 percent earlier
Wednesday, which was its highest since August 2009.
    Two-year yield reached 2.508 percent, its highest
level since September 2008 before retreating to 2.492 percent,
up 1 basis point from late Tuesday.
    The 30-year yield hit a two-month high at 3.169
April 25 Wednesday 3:10PM EDT/ 1910 GMT
 US T BONDS JUN8               141-22/32    -0-27/32   
 10YR TNotes JUN8              119-12/256   -0-72/256  
                               Price        Current    Net
                                            Yield %    Change
 Three-month bills             1.82         1.8538     -0.013
 Six-month bills               1.9825       2.0304     -0.011
 Two-year note                 99-198/256   2.4919     0.011
 Three-year note               99-66/256    2.6363     0.014
 Five-year note                98-118/256   2.8366     0.026
 Seven-year note               97-212/256   2.974      0.038
 10-year note                  97-168/256   3.0277     0.045
 30-year bond                  95-244/256   3.2118     0.043
   DOLLAR SWAP SPREADS                                 
                               Last (bps)   Net        
 U.S. 2-year dollar swap        27.00         0.25     
 U.S. 3-year dollar swap        22.50         1.25     
 U.S. 5-year dollar swap        12.00         1.50     
 U.S. 10-year dollar swap        3.00         0.75     
 U.S. 30-year dollar swap      -12.25         1.25     

 (Additional reporting by Lewis Krauskopf; editing by Jonathan
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