February 7, 2018 / 2:45 PM / 7 months ago

TREASURIES-Prices fall before 10-yr auction, stock volatility could help demand

    * Treasury to sell  $24 bln 10-year notes
    * Equity volatility may boost demand for bonds

    By Karen Brettell
    NEW YORK, Feb 7 (Reuters) - U.S. Treasury prices fell on
Wednesday before the Treasury Department was due to auction new
10-year notes, though losses were limited as investors remained
nervous about recent equity market volatility.
    Monday’s stock market rout helped bring investors back to
low risk bonds, after yields hit four-year highs on concerns
that rising inflation might lead the Federal Reserve to raise
rates faster than previously anticipated.
    That bid may help the Treasury sell $24 billion in 10-year
notes, the second sale of $66 billion in coupon-bearing supply
this week.
    “I think there will be some increased demand in the 10-year
from investors because they are very unsure of the future of the
equity market,” said Tom di Galoma, a managing director at
Seaport Global Holdings in New York.
    The government will also sell $16 billion in 30-year bonds
on Thursday. The United States saw soft demand for a $26 billion
sale of three-year notes on Tuesday.             
    U.S. stocks were weaker on Wednesday after a wild session on
Tuesday saw the Dow Jones Industrial Average swing more than
1,100 points from peak to trough.             
    Benchmark 10-year yields            were last down 6/32 to
2.789 percent, up from 2.766 percent on Tuesday. The yields rose
as high as 2.885 percent in overnight trading on Monday, the
highest since January 2014.
    Investors remain nervous about the prospect of higher yields
as data continues to point to a stronger economy. 
    Next week’s consumer price and retail sales data will be
closely scrutinized for further indications of rising price
pressures.
    “My belief is that fixed income investors are better sellers
of Treasuries and of rates in general, mainly because they still
believe the economy is doing quite well,” said di Galoma.
    Dallas Fed President Robert Kaplan said on Wednesday that
higher wages would not necessarily lead to faster inflation.
            
    Another concern is that the Treasury faces larger funding
needs due to the U.S. central bank’s declining participation in
the bond market.
    Large increases in issuance this year are expected after the
government raises the debt ceiling.
    The Congressional Budget Office said last Wednesday it
thought the government would run out of cash to pay its bills in
the first half of March.             

 (Reporting by Karen Brettell; Editing by Andrew Hay)
  
 
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