May 7, 2018 / 3:13 PM / 2 months ago

TREASURIES-Trade light, yields flat ahead of auctions, CPI data this week

    By Kate Duguid
    NEW YORK, May 7 (Reuters) - Trading was light and Treasury
yields were little changed on Monday with London on holiday
ahead of this week's auctions of $73 billion in U.S. government
debt and Thursday's release of the Consumer Price Index
inflation metric. 
    "This morning is a rerun of light trading activity, only
partly due to the London holiday. Data won't demand to be traded
until CPI Thursday morning. Traders will spend most of today and
the first half of tomorrow working on their auction strategy and
determining whether corporate supply will return in earnest this
week," said Jim Vogel, interest rate strategist at FTN Financial
in Memphis, Tennessee.  
    The Treasury Department's $73 billion refunding package for
May is up from the $66 billion it offered in February, with most
of the increase coming from short-end maturities. The Treasury
will sell $31 billion in three-year notes, $25 billion in
10-year notes, and $17 billion in 30-year bonds.
    The Treasury on May 2 announced the increased supply of debt
to offset the impact of the Federal Reserve's reduction in its
bond buying. The new debt supply will also be used to fund the
$1.5 trillion the Republican government's tax cut bill will add
to the federal deficit. 
    While the quarterly funding program did increase, it
nevertheless came in short of analyst expectations. The Treasury
will raise the size of the two- and three-year note auctions by
just $1 billion per month in the second quarter, compared with
the $2 billion increases in the first. 
    Yields on U.S. benchmark 10-year Treasury notes
were up slightly on Monday - by 0.8 basis point at 2.952 percent
- from their last close. Yields on 30-year bonds
were up 1 basis point at 3.123 percent from their last close.
Both maturities on Friday slid to two-week lows after a
weaker-than-expected April payrolls report, while those on
two-year notes fell to a one-week low.
    Also key this week will be the consumer price report on
Thursday, which will be watched closely after the Labor
Department on Friday announced that average earnings growth,
another closely monitored inflation indicator, rose by just 0.1
percent in April after gaining 0.3 percent the prior month.  
    "CPI is critical. We've moved from watching average hourly
earnings from the labor report to looking at the internals of
every inflation report, with CPI being the most closely
followed," said Vogel. 
     The two-year note was last at 2.505 percent, up
modestly from Friday's close at 2.501 percent. 
    
    May 7 Monday 10:54AM New York / 1454 GMT
                               Price                  
 US T BONDS JUN8               143-15/32    -0-6/32   
 10YR TNotes JUN8              119-168/256  -0-12/25  
                                            6         
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.805        1.838     0.002
 Six-month bills               1.9875       2.035     0.005
 Two-year note                 99-192/256   2.5052    0.004
 Three-year note               99-68/256    2.6362    0.006
 Five-year note                99-208/256   2.7905    0.010
 Seven-year note               99-212/256   2.9023    0.007
 10-year note                  98-72/256    2.9534    0.009
 30-year bond                  97-156/256   3.1238    0.010
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        26.25        -0.25    
 spread                                               
 U.S. 3-year dollar swap        22.00         0.50    
 spread                                               
 U.S. 5-year dollar swap        12.75         0.00    
 spread                                               
 U.S. 10-year dollar swap        3.50         0.25    
 spread                                               
 U.S. 30-year dollar swap      -11.00         0.50    
 spread                                               
 
 (Reporting by Kate Duguid; Editing by Dan Grebler)
  
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