November 7, 2018 / 3:38 PM / 7 days ago

TREASURIES-U.S. yields fall as elections produce divided U.S. Congress

    * Divided U.S. Congress seen capping growth, federal deficit
    * U.S. to sell record $19 bln 30-year bond supply at 1 p.m.
    * Traders await possible rate-hike clues from Federal
Reserve

    By Richard Leong
    NEW YORK, Nov 7 (Reuters) - U.S. Treasury yields fell on
Wednesday as elections for federal lawmakers split control of
the U.S. Congress between the two major political parties,
leaving investors to assess its impact on government spending
and borrowing in the coming year.
    As expected, the Democrats gained control of the House of
Representatives, while Republicans increased their majority in
the Senate. Analysts expect political gridlock that would hamper
passage of major fiscal measures.
    "It’s going to be more difficult to pass legislations," said
Gene Tannuzzo, senior portfolio manager at Columbia Threadneedle
in Minneapolis. 
    U.S. legislators will face an ever growing federal deficit
funded by more borrowing.
    The Treasury Department will complete its final leg of this
week's $83 billion quarterly refunding with a record offering of
$19 billion in 30-year bonds at 1 p.m. (1800 GMT). 
    This series of debt sales is expected to bring an additional
$28.7 billion to the federal coffers.
    Analysts projected solid demand for the 30-year issue
following a strong showing for the record amount of 10-year
notes sold on Tuesday.
    "The talk has been larger supply means higher yields, but we
haven’t seen that," Tannuzzo said. "The long-end has held up
quite well.” 
    In "when issue" activity, traders expect the 30-year bond
supply to sell at a yield of 3.390 percent,
which would be its highest yield at an auction since August
2011, Tradeweb data showed.
    On the open market, benchmark 10-year Treasury yield
 was down over 2 basis points at 3.189 percent. It
traded as high as 3.250 percent earlier Wednesday, just a shade
below a 7-1/2 year peak of 3.261 percent reached nearly a month
ago. 
    Borrowing costs for the government and private sector will
likely head higher as the Federal Reserve is expected to raise
short-term interest rates and shrink its balance sheet more. 
    Fed policymakers begin a two-day meeting on Wednesday. They
are expected to leave the U.S. central bank's benchmark
overnight lending rate unchanged in a range between 2.00 percent
and 2.25 percent.
    The futures market implied they will raise rates for a
fourth time in 2018 at their Dec. 18-19 policy meeting.
 
November 7 Wednesday 10:26AM New York / 1526 GMT
                               Price                  
 US T BONDS DEC8               137-31/32    17/32     
 10YR TNotes DEC8              118-32/256   4/32      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2.31         2.3558    -0.010
 Six-month bills               2.45         2.5152    -0.005
 Two-year note                 99-226/256   2.9362    0.004
 Three-year note               99-160/256   3.0067    0.000
 Five-year note                99-58/256    3.0435    -0.007
 Seven-year note               99-64/256    3.1204    -0.017
 10-year note                  99-116/256   3.1893    -0.026
 30-year bond                  92-188/256   3.3893    -0.037
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       24.80        -4.70     
 30-year vs 5-year yield       34.40        -4.25     
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        18.75         0.00    
 spread                                               
 U.S. 3-year dollar swap        16.00         0.00    
 spread                                               
 U.S. 5-year dollar swap        13.50         0.25    
 spread                                               
 U.S. 10-year dollar swap        6.25         0.50    
 spread                                               
 U.S. 30-year dollar swap       -9.25         1.50    
 spread                                               
 
    
 (Reporting by Richard Leong; Editing by David Gregorio)
  
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