October 23, 2017 / 7:16 PM / a year ago

TREASURIES-Prices slightly higher ahead of U.S. debt auctions

    * Focus on U.S. Treasury debt auctions
    * Investors expect solid demand for Treasury notes
    * ECB policy meeting also in focus

 (Adds comment, updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Oct 23 (Reuters) - U.S. Treasury debt prices
inched higher on Monday in thin volume, tracking gains in the
European bond market, as investors added to positions after a
sell-off over the last few days and ahead of this week's debt
auctions and a European Central Bank monetary policy meeting. 
    "I think there's a little bit of a set-up after the
sell-off," said Subadra Rajappa, head of U.S. rates strategy at
Societe Generale in New York. "Treasuries sold off a bunch the
past couple of days and it's normalizing ahead of demand and
globally there has been a rally as well."
    Euro zone government bond yields also slipped. A big win for
Japanese Prime Minister Shinzo Abe's ruling bloc in a national
election ensured the continuation of ultra-easy monetary policy
in Japan and sets the stage for this week's ECB policy meeting.

    Investors expect the ECB to flag a gradual approach in
removing monetary accommodation in the euro zone that has kept
bond yields in the region low for some time.
    Market participants are also focused on this week's
shorter-dated Treasury debt auctions. The Treasury is selling
$26 billion in 2-year notes on Tuesday, $34 billion in 5-year
notes and $15 billion in 2-year floating rate notes on
Wednesday, and $28 billion in 7-year notes.
    Since the September auction cycle, yields have moved higher 
as interest rate hike expectations for December have increased.
This reflects the recent stronger U.S. economic data as well as
the Federal Reserve's increased hawkishness about the outlook
for interest rates.
    Overall, investors expect solid demand for this week's
auction given how Treasuries have sold off in the last few
    In a research note Societe Generale said it is "slightly
positive" on the two-year Treasuries auction on Tuesday,
although the note would have to sell off a little more to
generate interest.
    "The current two-year note is trading cheaply on the curve,
which is a positive for the auction, as is the fact that
speculators hold a record short in the sector, which will likely
benefit the auction from short-covering," the French bank said. 
    In late trading, 10-year U.S. Treasury note prices were up
1/32, yielding 2.375 percent, down from Friday's
2.381 percent. 
    U.S. 30-year bond prices rose 3/32, with a yield of 2.888
percent, down from 2.894 percent last Friday.
    U.S. two-year note yields, meanwhile, were at 1.568 percent
, also down from 1.576 percent on Friday. 
      October 23 Monday 3:01PM New York / 1901 GMT
 US T BONDS DEC7               152-11/32    0-5/32    
 10YR TNotes DEC7              124-232/256  0-20/256  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.08         1.0978    -0.005
 Six-month bills               1.24         1.2649    0.000
 Two-year note                 99-162/256   1.5683    -0.008
 Three-year note               99-200/256   1.7006    -0.016
 Five-year note                99-98/256    2.0069    -0.013
 Seven-year note               99-96/256    2.2227    -0.007
 10-year note                  98-232/256   2.3755    -0.006
 30-year bond                  97-60/256    2.8889    -0.005
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        23.50        -0.25    
 U.S. 3-year dollar swap        22.50         0.25    
 U.S. 5-year dollar swap         7.50         0.00    
 U.S. 10-year dollar swap       -2.75        -0.25    
 U.S. 30-year dollar swap      -30.00         0.50    
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Chizu
Nomiyama and Susan Thomas)
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