February 22, 2018 / 7:37 PM / a year ago

TREASURIES-Prices pare gains after soft seven-year auction

 (Recasts with auction result, adds quote, updates prices)
    * Treasury sells $29 bln seven-year notes to tepid demand
    * Fed minutes show higher confidence in raising rates

    By Karen Brettell
    NEW YORK, Feb 22 (Reuters) - U.S. Treasuries pared price
gains on Thursday after the U.S. government sold new seven-year
notes to slightly soft demand, the final sale of $258 billion in
debt this week.
    The debt sold around 0.6 basis points higher in yield than
before the auction, though yields fell more than 3 basis points
before the sale. The bid was 2.49 times the debt on offer, the
weakest since November.             
    Direct bidders, which includes large sovereign buyers
including China and Japan as well as some large asset managers,
took the largest share of the auction since September.
    "It was a little bit below market prices for where it went
off and the bid cover was a bit light, but the direct bidders
were stronger than average," said Lou Brien, a market strategist
at DRW Trading in Chicago.
    Seven-year notes            were last up 2/32 in price to
yield 2.842 percent, after dropping as low as 2.822 percent
before the auction.
    The Treasury is facing higher debt needs after a major tax
overhaul last year, which is expected to worsen the U.S.
deficit, and a two-year budget deal reached this month that will
increase 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 also 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 auction
    The amount of Treasury issuance this week, which also
included $151 billion worth of bills, $28 billion of two-year
notes, $35 billion of five-year notes, and $15 billion of
two-year floating-rate notes, was the second-largest ever over a
three-day period.            
    Benchmark 10-year note yields             were last up 4/32
in price to yield 2.926 percent, after rising to a four-year
high of 2.957 percent on Wednesday.
    Those yields rose after minutes from the Fed's last policy
meeting showed more confidence in the need to keep raising
interest rates.             
    The move, however, was also likely driven by hedging needs
due to strong corporate debt issuance, said Subadra Rajappa,
head of U.S. rates strategy at Societe Generale in New York.
    "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 Paul Simao)
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