Bonds News

TREASURIES-U.S. yield curve flattens after soft 7-year auction

    * U.S. sells $31 bln 7-year notes to highest yield since
    * Yield curve holds near flattest in over a week
    * U.S. core capital goods unexpectedly fall in August
    * U.S. GDP growth unrevised at 4.2 pct in 2nd qtr

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, Sept 27 (Reuters) - U.S. Treasury yield curve
moved to its flattest level in over a week on Thursday, led by a
fall in longer-dated yields, despite weak demand at a $31
billion auction of seven-year government notes.
    The yield curve flattened further in the wake of the Federal
Reserve's signal on Wednesday that it would raise overnight
borrowing costs further into 2020 even as it projected inflation
may slip by that time.
    "It does look like their inflation target will fall after
2020," said Brian Rehling, co-head of global fixed income
strategy at Wells Fargo Investment Institute in St. Louis,
    On Wednesday, Fed officials released their latest economic
projections, which showed their range of core inflation view
firming to 2.1 to 2.2 percent in 2020 from the 1.9 to 2.0
percent in 2018. The range was 2.0 to 2.2 percent in 2021.

    The spread between two-year and 10-year yields
 narrowed to 21.7 basis points, the tightest level
in over a week.    
    Bond yields climbed modestly in the wake of data that
reinforced a view of solid economic growth. They had fallen
earlier Thursday on safe-haven demand tied to worries about the
Italian government's struggle to reach a budget deal.
    A government report showed gross domestic product grew at a
4.2 percent clip in the second quarter, the fastest in nearly
four years. Another report stated durable goods rose 4.5 percent
in August, rebounding from a revised 1.2 percent drop the month
    Other government data released on Thursday signaled a wider
deficit in goods trade in August and a slight pickup in jobless
claims last week. 
    The latest spate of economic figures generally supported the
outlook from the Federal Reserve, which, as expected, raised key
short-term interest rates for a third time in 2018 on Wednesday.
    Benchmark 10-year Treasury yield was down 0.7
basis point at 3.054 percent. On Tuesday, it reached 3.113
percent, its highest since May, Reuters data showed.
    The 30-year yield slipped 0.5 basis point to
3.186 percent. It hit a four-month peak of 3.249 percent on
    Two-year yields gained 0.8 basis point to 2.835
percent after touching 2.847 percent on Tuesday, which was last
seen in June 2008.
    On the supply front, the Treasury Department sold the latest
seven-year Treasury issue to soft demand at a
yield of 3.034 percent, which was the highest yield at an
auction since April 2010.
    Earlier this week, sales of two-year and five-year
Treasuries fetched poor demand amid investor caution before the
Fed's latest rate increase.
  Thursday, Sept. 27 at 1541 EDT (1941 GMT):
 US T BONDS DEC8               140-21/32    4/32      
 10YR TNotes DEC8              118-200/256  2/32      
                               Price        Current   Net
                                            Yield     Change
                                            (pct)     (bps)
 Three-month bills             2.15         2.1916    -0.020
 Six-month bills               2.3125       2.3722    -0.003
 Two-year note                 99-214/256   2.8351    0.008
 Three-year note               99-152/256   2.8938    0.003
 Five-year note                99-160/256   2.9563    -0.002
 Seven-year note               98-92/256    3.0141    -0.008
 10-year note                  98-124/256   3.0536    -0.007
 30-year bond                  96-120/256   3.1839    -0.007
         YIELD CURVE           Last (bps)   Net       
 10-year vs 2-year yield       21.70        -1.20     
 30-year vs 5-year yield       22.70        -0.85     
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        16.25        -0.75    
 U.S. 3-year dollar swap        16.00        -1.00    
 U.S. 5-year dollar swap        11.50        -0.50    
 U.S. 10-year dollar swap        5.75        -0.25    
 U.S. 30-year dollar swap       -6.50         0.00    

 (Reporting by Richard Leong; Editing by Bernadette Baum and
Lisa Shumaker)