April 8, 2019 / 7:53 PM / 2 months ago

TREASURIES-Prices dip ahead of U.S. debt supply, Saudi Aramco in focus

    * Demand for Saudi Aramco debut bond 'more than $30 bln'
    * Factory orders fall less than expected in February
    * U.S. inflation data, Fed minutes on tap this week
    * Markets price in one rate cut this year-BMO

 (Adds comment, details on what's expected this week, updates
    By Gertrude Chavez-Dreyfuss
    NEW YORK, April 8 (Reuters) - U.S. Treasury debt prices
drifted lower in generally quiet trading on Monday, pressured by
upcoming government debt and corporate supply.
    Investors this week are bracing for oil company Saudi
Aramco's inaugural bond deal as well as the U.S. Treasury's $78
billion auction of notes and bonds. The Saudi deal is expected
to be priced on Tuesday.  
    "Supply is definitely a factor this week with the Saudi
Aramco deal along with the Treasury auctions," said Justin
Lederer, Treasury analyst, at Cantor Fitzgerald in New York.
"With the Saudi deal set to be priced tomorrow, the longer bonds
are getting a little bit of pressure."
    Wall Street dealers typically lock in borrowing costs for
corporate bonds they are underwriting by selling Treasuries as a
hedge before the deal is completed. Once the bond is sold, the
dealer buys back Treasuries to exit the rate lock.
    Demand for Saudi Aramco's international bond, seen as a
gauge of potential investor interest in the oil company's
eventual initial public offering, is higher than $30 billion,
Saudi Energy Minister Khalid al-Falih said on Monday.

    That represents an oversubscription of more than three times
the size of the bond if Aramco sticks to its plan to issue
around $10 billion in the debt sale this week.
    In the United States, the U.S. Treasury will auction
$38-billion in three-year notes, $24 billion in 10-year notes,
and $16 billion in 30-year bonds.
    Investors typically sell Treasuries ahead of an auction to
push the yield higher so they can buy them at a lower price.
    The market is also waiting for data on U.S. consumer and
producer prices this week amid cooling wage pressures.
    The minutes from the last Federal Reserve policy meeting
will be also be on tap this week.
    BMO Capital Markets said in a research note the minutes
"offer a glimpse at just how dire the Fed views on the current
economic environment, from which investors will endeavor to skew
the probability of a pre-emptive rate cut later this year." 
    The bank noted that the fed fund futures markets has fully
priced in a 25 basis-point rate cut by the end of the year.
    In late trading, U.S. 10-year note yields rose to 2.518%
, up from 2.499% late on Friday.
    U.S. 30-year bond yields, were also up at 2.925%
, from 2.909% on Friday.
    On the short end of the curve, U.S. 2-year yields were up at
2.359%, compared with Friday's 2.343%.
    Yields inched higher after data showed new orders for
U.S.-made goods fell less than expected in February. Factory
goods orders dropped 0.5 percent in February.
      April 8 Monday 3:28PM New York/1928 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             2.375        2.4219    -0.012
 Six-month bills               2.395        2.4639    0.005
 Two-year note                 99-202/256   2.3597    0.017
 Three-year note               100-44/256   2.3137    0.017
 Five-year note                99-14/256    2.3272    0.015
 Seven-year note               98-232/256   2.4213    0.022
 10-year note                  100-228/256  2.5222    0.023
 30-year bond                  101-112/256  2.9273    0.018
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap         9.50        -0.75    
 U.S. 3-year dollar swap         7.00        -0.25    
 U.S. 5-year dollar swap         3.75         0.00    
 U.S. 10-year dollar swap       -1.75         0.00    
 U.S. 30-year dollar swap      -24.75         0.00    
 (Reporting by Gertrude Chavez-Dreyfuss
Editing by Susan Thomas)
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