September 13, 2017 / 7:41 PM / a year ago

TREASURIES-Government, corporate supply lift U.S. bond yields

    * U.S. sells $12 bln 30-year bond supply to mediocre demand
    * Companies raised $26 bln in corporate bond market
    * U.S. August producer price data supports benign inflation

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, Sept 13 (Reuters) - U.S. Treasury yields rose on
Wednesday with 10-year yield reaching a 2-1/2 week high as
investors reduced their bond holdings to make room for this
week's government and corporate debt supply.
    A recovery of stock prices on Wall Street the prior two
sessions, before a slight pullback on Wednesday, also
underpinned the rise in bond yields, analysts said.
    Investors unloaded equities and other risky assets last week
on concern about the potential for massive damage from Hurricane
Irma and tension between North Korea and the United States and
its allies over Pyongyang's nuclear weapons program.

    Safe-haven buying of Treasuries knocked the benchmark
10-year yield to a 10-month low, just above 2 percent on Friday,
 before turning higher this week on reduced tension between
Washington and Pyongyang and early signs that destruction from
Irma in the United States would not be as devastating as some
had feared.
    "The bond market is comfortable in a 2.10-2.30 percent
range. We need new stresses to push it out of that range," said
Matt Toms, chief investment officer of fixed income at Voya
Investment Management in Atlanta.
    The 10-year yield was at a 2-1/2 week peak of 
2.195 percent, up more than 2 basis points on the day.
    The 30-year bond yield hovered near a three-week
high at 2.792 percent, up nearly 2 basis points, following a $12
billion auction of long bond supply.
    This final leg of this week's $56 billion in coupon-bearing
Treasuries supply met mediocre demand in the aftermath of poor
bidding at the three-year and 10-year auctions earlier this
    "It's the bearish mentality at these (low) yield levels,"
said John Canavan, market strategist at Stone & McCarthy
Research Associates in New York. 
    As the government wrapped up its debt sales for the week,
companies have raised about $26 billion through the sales of
investment-grade and high-yield debt this week, according to
IFR, a Thomson Reuters unit.
    On the data front, domestic producer prices grew 0.2 percent
in August, less than the 0.3 percent increase forecast among
analysts polled by Reuters.
    This latest reading reinforced the view that domestic
inflation would remain below the Federal Reserve's 2 percent
goal longer than previously thought.
    This benign inflation outlook should help hold down
long-term bond yields, analysts said. 
    "There is a lack of fear of inflation in the bond market.
There's no credible case for inflation to increase," Toms said.
  September 13 Wednesday 3:19PM New York / 1919 GMT
 US T BONDS DEC7               154-27/32    -0-13/32  
 10YR TNotes DEC7              126-112/256  -0-52/25  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.0275       1.0445    0.000
 Six-month bills               1.1425       1.1651    0.002
 Two-year note                 99-204/256   1.3552    0.020
 Three-year note               99-174/256   1.4846    0.019
 Five-year note                99-76/256    1.7736    0.027
 Seven-year note               99-32/256    2.0103    0.018
 10-year note                  100-124/256  2.1953    0.024
 30-year bond                  99-36/256    2.7925    0.017
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        23.75         0.50    
 U.S. 3-year dollar swap        20.25         1.00    
 U.S. 5-year dollar swap         7.00         0.25    
 U.S. 10-year dollar swap       -4.25         1.00    
 U.S. 30-year dollar swap      -34.25         1.25    

 (Reporting by Richard Leong; Editing by Steve Orlofsky)
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