(Recasts with auction results, adds quote, data, updates prices) By Karen Brettell NEW YORK, April 26 (Reuters) - U.S. intermediate-dated Treasury yields rose on Monday after the Treasury Department sold $121 billion in short- and intermediate-dated debt to mixed demand, and ahead of this week’s Federal Reserve meeting. A $60-billion sale of two-year notes was soft while a $61-billion sale of five-year notes was seen as average, with both yields pricing just a fraction higher than where they had traded before the auction. A $62-billion auction of seven-year notes will be closely watched on Tuesday, after the Treasury saw very weak demand for the debt in February, sparking a broad market selloff. The notes also saw tepid, albeit improved, demand in March. “Tomorrow should be a bit stronger than February and March just given the start of Japanese fiscal new year,” said Benjamin Jeffery, an interest rate strategist at BMO Capital Markets in New York. Japanese investors have increased their purchases of foreign bonds since the start of their new fiscal year on April 1, which analysts say is helping demand for Treasuries. “In the last few weeks there has been clearly demand for U.S. Treasuries, and especially in the belly of the curve, so I think it will go ok,” said Justin Lederer, an interest rate strategist at Cantor Fitzgerald in New York. That said, yields could rise heading into the sale and investors may also be cautious before the Fed meeting, Lederer added. Benchmark 10-year note yields were little changed on the day at 1.570%. They have dropped from a more than one-year high of 1.776% last month. Two-year yields and five-year yields both gained one-and-a-half basis points to 0.172% and 0.831%, respectively. Seven-year yields rose one basis point to 1.261%. The Fed is expected to confirm that it will hold rates near zero for years to boost the economy when it concludes its two-day meeting on Wednesday. Market participants will also be watching to see if the U.S. central bank raises the interest it pays on excess reserves (IOER) and reverse repo as borrowing rates in the overnight repurchase agreement market intermittently trade negative and short-term bill yields approach zero. Overnight repo rates were at two basis points on Monday. They traded as low as minus six basis points last month. One-month Treasury bill yields bounced as high as four basis points on Monday, after dropping as low as one-fifth of a basis point last week. The federal funds rate, however, has stayed steady at seven basis points, except for a brief dip to six basis points on March 31, which may prompt the Fed to leave rates unchanged. Analysts expect the Fed will hike IOER if the fed funds rate falls below five basis points. Data on Monday showed that new orders for key U.S.-made capital goods rose solidly in March and shipments surged, cementing expectations that economic growth accelerated in the first quarter as massive government aid and improving public health boosted demand. April 26 Monday 3:00PM New York / 1900 GMT Price Current Net Yield % Change (bps) Three-month bills 0.015 0.0152 -0.005 Six-month bills 0.035 0.0355 0.001 Two-year note 99-233/256 0.1717 0.015 Three-year note 100-20/256 0.3485 0.014 Five-year note 99-156/256 0.8311 0.015 Seven-year note 99-238/256 1.2606 0.010 10-year note 95-248/256 1.5702 0.003 20-year bond 95-236/256 2.1284 -0.009 30-year bond 92-4/256 2.2438 -0.007 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 11.00 -1.00 spread U.S. 3-year dollar swap 12.75 -0.75 spread U.S. 5-year dollar swap 9.25 -0.25 spread U.S. 10-year dollar swap -1.00 -0.50 spread U.S. 30-year dollar swap -27.25 -0.75 spread (Editing by Toby Chopra and Sonya Hepinstall)
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