January 25, 2018 / 8:20 PM / 10 months ago

TREASURIES-Prices gain on Trump's dollar comment, strong U.S. note auction

    * Trumps says he wants strong dollar
    * U.S. 7-year note auction results show strong demand
    * ECB's Draghi says euro zone inflation to rise in medium
term

 (Recasts, adds comment, 7-year note auction results, Trump's
dollar remarks; updates table, prices in text)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Jan 25 (Reuters) - U.S. Treasury debt prices rose
on Thursday, boosted by solid demand for 7-year notes and
comments from President Donald Trump saying he wants a strong
dollar, contradicting comments by Treasury Secretary Steven
Mnuchin a day earlier.
    U.S. benchmark 10-year note and 30-year bond yields, which
move inversely to prices, hit session lows following Trump's
remarks on the dollar.
    Trump, who is scheduled to speak on Friday at the World
Economic Forum in Davos, Switzerland, said in an interview with
CNBC on Thursday that he ultimately wants the dollar to be
strong. He added that Mnuchin's comments had been
misinterpreted.
    Treasury prices fell on Wednesday after Mnuchin backed a
weaker dollar to help boost America's global trade, breaking
from the traditional strong currency policy of past
administrations. Analysts said a weaker dollar could diminish
the attractiveness of dollar-based assets such as Treasuries.
    "Clearly there was some blowback on the Mnuchin 'weak dollar
ok' comments and perhaps the president felt the need to calm the
waters ahead of his Davos speech tomorrow," Action Economics
said in a blog on its website.
    "Yields are extending their reversal lower as this seems to
imply the FX rug won't be pulled out from under foreign
investors after all," it added.
    Treasury prices were also helped by strong demand for U.S.
7-year notes in an auction.
    The note picked up a yield of 2.565 percent, the strongest
level since April 2011. The yield also came in well below the
expected 2.577 at the bid deadline.
    There were nearly $76.5 billion in bids for a 2.73
bid-to-cover ratio, matching the level set 13 months ago. This
ratio was 2.55 at the prior 7-year note sale in December. 
    In mid-afternoon trading, benchmark U.S. 10-year note yields
 fell to 2.626 percent, down from Wednesday's 2.654
percent.
    U.S. 30-year bond yields also dropped to 2.888 percent
, down from 2.937 percent late on Wednesday. The
yield on this maturity touched a 3-1/2-month peak the previous
session.
    After the auction, U.S. 7-year note yields fell to 2.551
percent, down from 2.579 percent on Wednesday.
    Earlier on Thursday, prices fell in tandem with gains in
those of euro zone bonds after European Central Bank President
Mario Draghi cited the region's "solid and broad" growth and
said inflation was likely to rise in the medium term.

    The yield on benchmark 10-year German government bonds hit a
six-month high of 0.579 percent following Draghi's remarks.

    
      January 25 Thursday 3:00PM New York / 2000 GMT
                               Price                  
 US T BONDS MAR8               149-12/32    0-29/32   
 10YR TNotes MAR8              122-116/256  0-64/256  
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.4025       1.427     -0.013
 Six-month bills               1.6          1.6354    0.002
 Two-year note                 99-214/256   2.0842    0.000
 Three-year note               99-114/256   2.1939    -0.011
 Five-year note                99-204/256   2.4184    -0.024
 Seven-year note               98-28/256    2.5493    -0.030
 10-year note                  96-208/256   2.6207    -0.033
 30-year bond                  97-88/256    2.8833    -0.054
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        18.25         0.50    
 spread                                               
 U.S. 3-year dollar swap        18.75         0.25    
 spread                                               
 U.S. 5-year dollar swap         7.25         0.25    
 spread                                               
 U.S. 10-year dollar swap        1.75        -0.75    
 spread                                               
 U.S. 30-year dollar swap      -15.00        -0.50    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Frances
Kerry and Susan Thomas)
  
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