May 8, 2019 / 6:20 PM / a month ago

TREASURIES-U.S. yields spike up after dismal 10-year note sale

    * U.S. sells $27 bln 10-year notes to poor demand
    * Longer-dated Treasury yields hit 5-week lows before rising
    * Corporate supply led by IBM adds upward pressure on yields
    * U.S. plans higher tariffs on $200 bln of Chinese imports

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, May 8 (Reuters) - U.S. Treasury yields rose on
Wednesday, reversing an earlier drop due to trade worries, as
traders sold their bond holdings in the wake of a poor 10-year
note auction and competing supply from the corporate bond
market.
    Earlier Wednesday, longer-dated yields fell to a five-week
lows as investors had piled money into low-risk government debt
amid an escalating trade battle between economic giants China
and the United States.
    The pickup in safe-haven demand for Treasuries had stoked
expectations for solid bidding for $27 billion of new 10-year
supply, the second leg of this week's $84 billion quarterly
government refunding, analysts said.
    Those bids did not materialize, resulting in a "terrible"
10-year auction, said DRW Trading market strategist Lou Brien.
    "The weakness in the bidding might boil down to the fact
that it has just come too far, too fast, and there isn’t a lot
of further upside at this yield," Tom Simons, senior money
market strategist at Jefferies LLC, wrote in a research note.
    The ratio of bids to the amount of 10-year notes offered was
2.17, the lowest reading on this measure of overall auction
demand since March 2008.
    The Treasury will complete this week's refunding, which
would raise $28.6 billion in fresh cash for the federal
government, with a $19 billion 30-year bond auction on Thursday.
    In the credit sector, IBM is expected to sell about $20
billion in debt to help fund its acquisition of software company
Red Hat, according to IFR.
    At 1:47 p.m. (1747 GMT), the yields on benchmark 10-year
Treasury notes were up 3.6 basis points at 2.484%
after hitting a five-week low of 2.426% earlier in the session.
    The United States said it will raise tariffs on $200 billion
worth of Chinese imports to 25% from 10% effective Friday, with
Chinese Vice Premier Liu He due to arrive in Washington for two
days of trade talks.
    U.S. officials have accused China of reneging over the past
week on substantial commitments made during months of
negotiations aimed at ending their trade war.
    The abrupt deterioration in relations between the world's
two largest economies and reduced prospects for a trade deal
have rattled investor confidence about prospects for the global
economy and business activities.
    Wall Street's major equity indexes opened lower before
rebounding amid uncertainty over the upcoming round of U.S-China
trade talks.
    Treasury yields retraced their initial lows after U.S.
President Donald Trump said on Twitter China was "now coming to
the U.S. to make a deal."
May 8 Wednesday 1:57PM New York / 1757 GMT
                               Price                  
 US T BONDS JUN9               148-7/32     -17/32    
 10YR TNotes JUN9              123-192/256  -9/32     
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2.38         2.4277    -0.004
 Six-month bills               2.38         2.4424    -0.002
 Two-year note                 99-236/256   2.2905    0.008
 Three-year note               99-160/256   2.255     0.017
 Five-year note                99-214/256   2.285     0.033
 Seven-year note               99-248/256   2.3798    0.034
 10-year note                  101-56/256   2.4835    0.036
 30-year bond                  102-56/256   2.8883    0.026
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       19.10        2.30      
 30-year vs 5-year yield       60.20        -0.15     
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        10.25         0.50    
 spread                                               
 U.S. 3-year dollar swap         7.25         0.75    
 spread                                               
 U.S. 5-year dollar swap         3.50         0.00    
 spread                                               
 U.S. 10-year dollar swap       -2.50        -0.25    
 spread                                               
 U.S. 30-year dollar swap      -25.25         0.00    
 spread                                               
 
    

    
 (Reporting by Richard Leong
Editing by Bernadette Baum)
  
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