September 25, 2018 / 7:23 PM / 21 days ago

TREASURIES-Rate-hike view, weak auctions lift U.S. yields

    * U.S. sells $38 bln 5-year note at highest yield in a
decade
    * Fed widely seen raising interest rates at policy meeting 
    * U.S. 10-year, 30-year yields hit highest since May
    * Investors net short in bonds hits 4-month low - survey

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, Sept 25 (Reuters) - U.S. Treasury yields climbed
on Tuesday, with the 10-year yield scaling to a four-month peak,
on bets about Federal Reserve interest rate increases in the
coming months and poor demand so far for this week's supply of
government debt. 
    The U.S. Treasury Department sold $38 billion in five-year
notes to soft bidding, following a weak auction for $37 billion
of two-year debt on Monday.
    "The weakness we have seen in the two-year and five-year
auctions has come due to some caution of the Fed meeting," said
Jonathan Cohn, interest rate strategist at Credit Suisse in New
York.     
    The government has ramped up borrowing since February as the
deficit has grown following the massive tax cut enacted last
December and a federal spending deal inked in February.
    Traders and analysts widely expect the U.S. central bank to
lift the target range on key overnight borrowing costs by a
quarter point at a two-day policy meeting that began Tuesday.
    Rates futures implied traders priced in an 80 percent chance
the Fed would raise rates again in December, CME
Group's FedWatch program showed.
    Fed officials have signaled in recent days that the U.S.
economic expansion remains intact with inflation heading toward
their 2 percent goal, which would allow for more rate hikes in
coming months.
    "We're seeing risks skewed hawkishly," said Blake Gwinn,
U.S. rates strategist at NatWest Markets in Stamford,
Connecticut. "People have been leaning short for the past
month."
    Expectations of rate hikes have prompted many investors to
sell Treasuries, sending short-dated yields to their highest in
a decade. Still, Treasuries have drawn some support from worries
that global trade tensions might hurt the U.S. economy.
 
    U.S. President Donald Trump criticized China for its trade
practices in his annual address to the United Nations on
Tuesday. Financial markets did not react to his latest remarks
on China.
    The benchmark 10-year Treasury yield was 3.102
percent, up over 2 basis points from late on Monday. Its session
high of 3.113 percent was its highest since May, Reuters data
showed.
    The 30-year yield reached 3.249 percent, its
highest in four months.
    Five-year yields touched 2.990 percent, which was
last seen in June 2009.
    Some investors, who reckoned the current selloff in
Treasuries may be overdone, dialed back their bearish positions
or "short" bets.
    J.P. Morgan's latest weekly survey showed investors' net
shorts in longer-dated Treasuries fell to 2 percent, the lowest
level in nearly four months.
September 25 Tuesday 3:02PM New York / 1902 GMT
                               Price                  
 US T BONDS DEC8               139-27/32    -13/32    
 10YR TNotes DEC8              118-116/256  -6/32     
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2.1725       2.215     -0.002
 Six-month bills               2.32         2.3802    0.010
 Two-year note                 99-210/256   2.8432    0.016
 Three-year note               99-136/256   2.9157    0.020
 Five-year note                98-240/256   2.9832    0.024
 Seven-year note               98-20/256    3.0597    0.023
 10-year note                  98-24/256    3.1001    0.022
 30-year bond                  95-148/256   3.2317    0.022
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       25.50        -1.10     
 30-year vs 5-year yield       24.80        -0.85     
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        16.25        -0.25    
 spread                                               
 U.S. 3-year dollar swap        16.00         1.00    
 spread                                               
 U.S. 5-year dollar swap        12.25         0.50    
 spread                                               
 U.S. 10-year dollar swap        5.25         0.00    
 spread                                               
 U.S. 30-year dollar swap       -7.25         0.00    
 spread                                               
 

    
 (Reporting by Richard Leong; Editing by David Gregorio and
Chizu Nomiyama)
  
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