September 25, 2017 / 2:21 PM / a year ago

TREASURIES-U.S. yields fall ahead of supply, Yellen speech

    * U.S. to sell $88 bln short to medium notes
    * Fed's Dudley expects continued gradual U.S. rate increases
    * German election results spur safe-haven bids

    By Richard Leong
    NEW YORK, Sept 25 (Reuters) - U.S. Treasury yields slipped
on Monday, holding in a tight trading range ahead of this week's
government debt supply and a speech on Tuesday from Federal
Reserve Chair Janet Yellen.
    U.S. bond yields initially fell in step with their German
counterparts following a surprisingly weak election result for
Germany's Angela Merkel as a surge in support for the far right
stoked concerns about a more hardline stance towards the euro
    "Even with the lower rates on Friday and the volatility this
morning, we are seeing more evidence we are in a tight trading
range," said Mike Lorizio, head of Treasuries trading at
Manulife Asset Management in Boston.
    At 9:56 a.m. (1356 GMT), benchmark 10-year Treasury yield
 was down nearly 2 basis points at 2.246 percent. 
    Last Wednesday, the 10-year yield reached 2.289 percent, its
highest since Aug. 8, after the Fed signaled it may raise
interest rates at its Dec. 12-13 policy meeting.
    Ten-year yields have since retreated from those highs partly
on anxiety about tensions between North Korea and the United
States and its allies. 
    The North Korean foreign minister was scheduled to make a
public statement at 10 a.m. (1400 GMT).
    Still, traders appeared more focused on this week's bond
supply and what Yellen may hint about a possible December rate
increase than on geopolitical concerns.
    The Treasury Department will sell $26 billion of two-year
notes on Tuesday; $34 billion in five-year debt
on Wednesday and $28 billion of seven-year notes
 on Thursday.
    Companies also geared up to raise cash in the bond market
before the end of the third quarter.
    On Tuesday, Yellen is scheduled to speak on "Prospects for
Growth: Reassessing the Fundamentals" at 12:45 p.m. (1645 GMT). 
    Earlier on Monday, New York Fed President William Dudley
said the U.S. central bank is on track to gradually raise rates
given factors depressing inflation are "fading" and the U.S.
economy's fundamentals are sound.
    Interest rates futures implied traders saw about a 74
percent chance the Fed would raise rates in December
, little changed from late on Friday, CME Group's FedWatch
tool showed.
  September 25 Monday 9:56AM New York / 1356 GMT
 US T BONDS DEC7               154-11/32    0-8/32    
 10YR TNotes DEC7              125-220/256  0-32/256  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.0125       1.0291    0.000
 Six-month bills               1.17         1.1931    0.008
 Two-year note                 99-166/256   1.4354    -0.008
 Three-year note               99-108/256   1.575     -0.013
 Five-year note                98-230/256   1.8599    -0.011
 Seven-year note               98-164/256   2.0867    -0.014
 10-year note                  100-4/256    2.2481    -0.014
 30-year bond                  99-72/256    2.7855    -0.010
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        26.50         0.00    
 U.S. 3-year dollar swap        22.25        -0.25    
 U.S. 5-year dollar swap         8.00        -0.50    
 U.S. 10-year dollar swap       -3.75        -0.25    
 U.S. 30-year dollar swap      -31.75        -0.50    

 (Reporting by Richard Leong; Editing by Meredith Mazzilli)
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