January 24, 2018 / 8:34 PM / in 25 days

TREASURIES-Prices retreat after U.S. Treasury's Mnuchin endorses weak dollar

    * Mnuchin supports weak dollar
    * U.S. 5-year note auction shows mixed results

 (Adds comment, results of U.S. 5-year note auction, updates
prices, table)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Jan 24 (Reuters) - U.S. Treasury debt prices
slumped on Wednesday, after Treasury Secretary Steven Mnuchin
backed a weaker dollar to help boost America's global trade,
breaking from the traditional strong currency policy of past
administrations.
    U.S. 30-year bond yields, which move inversely to prices,
rose to their highest in more than three months, while those on
10-year and 2-year notes touched session highs.
    On the eve of U.S. President Donald Trump's speech at the
World Economic Forum in Davos, Switzerland, Mnuchin said a
weakening of the dollar benefits the United States.
    The dollar, already under pressure the last few months,
tumbled on his comments. Central banks aside from the Federal
Reserve, such as the European Central Bank, have moved to
normalize their monetary policies, boosting their currencies at
the expense of the dollar.
    Treasuries sold off on Wednesday in tandem with the dollar
following Mnuchin's remarks.  
    "If that intentional policy from the administration on the
dollar lasts, it might put off some overseas buyers that may be
interested in buying Treasuries," said Jim Vogel, interest rate
strategist at FTN Financial in Memphis, Tennessee.
    To be sure, analysts said Mnuchin was not the only reason
Treasuries sold off. 
    Vogel said investors reversed the rally seen in Treasuries
on Tuesday after the Bank of Japan kept interest rate targets
unchanged and its chief, Governor Haruhiko Kuroda, quashed
speculation of a move away from easy monetary policy.
    "The impact from the BoJ sort of eroded," Vogel said.
    In late trading, U.S. 10-year Treasury yields
rose to 2.652 percent, from 2.622 percent late on Tuesday.
    U.S. 30-year bond yields, meanwhile, hit a 3-1/2-month peak
of 2.956 percent and were last at 2.933 percent, up 
from 2.902 percent on Tuesday.
    The U.S. Treasury's $34 bln 5-year auction showed mixed
results, with the yield coming slightly higher than expected at
2.434 percent, the highest for this debt maturity since April
2010.
    Bids totaled $84.4 billion for a 2.48 bid-to-cover ratio,
higher than the previous auction's 2.36 and the 2.44 average.
Indirect bidders, which include foreign central banks, accepted
65.0 percent, also above December's 58.4 percent.
    Investors were also awaiting the European Central Bank's
policy decision on Thursday and Trump's speech on Friday in
Davos.
    Reuters reported last week that the ECB was unlikely to
ditch their bond-buying pledge at this week's meeting, and would
more likely alter guidance at the March meeting which includes
updated economic forecasts. 
    In the case of Trump, the risk is that he comes out in Davos
and starts a trade war, said Gennadiy Goldberg, interest rates
strategist at TD Securities in New York.
    "People want to find out what Trump unveils in Davos, what
kind of America First policy he announces," Goldberg added.
      
    January 24 Wednesday 3:16PM New York / 2016 GMT
                               Price                  
 US T BONDS MAR8               148-18/32    -0-21/32  
 10YR TNotes MAR8              122-64/256   -0-44/25  
                                            6         
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.415        1.4398    -0.007
 Six-month bills               1.5975       1.6329    -0.005
 Two-year note                 99-216/256   2.0801    0.021
 Three-year note               99-110/256   2.1992    0.022
 Five-year note                98-144/256   2.436     0.017
 Seven-year note               97-244/256   2.5742    0.025
 10-year note                  96-144/256   2.6502    0.028
 30-year bond                  96-100/256   2.9323    0.030
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        18.00        -1.75    
 spread                                               
 U.S. 3-year dollar swap        18.50         0.25    
 spread                                               
 U.S. 5-year dollar swap         7.00         0.50    
 spread                                               
 U.S. 10-year dollar swap        2.25        -0.50    
 spread                                               
 U.S. 30-year dollar swap      -15.00        -1.25    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Meredith
Mazzilli and Chizu Nomiyama)
  
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