February 22, 2018 / 2:36 PM / 10 months ago

TREASURIES-Prices firm before seven-year auction, final sale of week

    * Treasury to sell $29 bln seven-year notes
    * Five-year $34 bln sale on Wednesday saw average demand
    * Fed meeting minutes show higher confidence in raising

    By Karen Brettell
    NEW YORK, Feb 22 (Reuters) - U.S. Treasury prices firmed on
Thursday before the U.S. government was due to auction in new
seven-year notes, the final sale of $258 billion in debt this
    The Treasury is facing higher debt needs after a major tax
overhaul last year that is expected to increase the U.S.
deficit, while a two-year budget deal reached this month will
boost spending by $300 billion.             
    The U.S. government also needs to replenish its cash
balance, which was depleted as lawmakers negotiated to increase
the debt ceiling. It further needs to enlarge its debt auctions
to make up for declining purchases by the Federal Reserve, which
had been tacked onto debt sales and not included in the auction
    Thursday’s $29 billion seven-year note sale is $1 billion
higher than last month. The recent backup in yields could help
    “I would probably think that at current levels sevens should
go okay,” said Subadra Rajappa, head of U.S. rates strategy at
Societe Generale in New York.
    Seven-year note yields            have increased to 2.837
percent from 2.665 percent at the beginning of February, though
they are down from an almost seven-year high of 2.877 percent
hit last Thursday. They have surged from 1.841 percent in
    The government saw average demand for a $35 billion sale of
five-year notes on Wednesday, which was also $1 billion larger
than the previous month, and for a $28 billion two-year note
auction on Tuesday, which was $2 billion larger than in January.
    Demand was weak on Wednesday, however, for a $15 billion
sale of two-year floating-rate notes, which was $2 billion
larger than the previous month.             
    The amount of Treasury issuance this week, which also
includes $151 billion worth of bills, is the second largest ever
over a three-day period.            
    Benchmark 10-year note yields             were last 2.919
percent, after rising to a four-year high of 2.957 percent on
    That yields jumped after minutes from the Fed’s last policy
meeting showed more confidence in the need to keep raising
rates, with most believing that inflation would perk up.
    The move in yields, however, was likely driven by the need
to hedge corporate debt sales, said Rajappa.
    “There might have been some hedging corporate issuance
related flows that might have pushed the long end significantly
higher, and now you’re seeing a little bit of a retracement of
that,” Rajappa said.

 (Editing by Meredith Mazzilli)
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