November 8, 2017 / 8:39 PM / a year ago

TREASURIES-U.S. bond yields nudge higher as supply weighs

    * U.S. sells $23 bln in 10-year notes to solid demand
    * Corporate bond supply competes for investors' cash
    * U.S. yield curve reaches flattest level in a decade

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, Nov 8 (Reuters) - U.S. Treasury yields edged
higher on Wednesday with the yield curve close to its flattest
level in a decade, as investors reduced their existing bond
holdings to make room for this week's government and corporate
bond supply.
    Demand for new issues have been solid, led by $23 billion of
U.S. benchmark 10-year Treasury notes, the second part of the
November quarterly refunding worth $64 billion.
    Healthy appetite for longer-dated debt underscored traders'
preference for them over shorter-dated issues over the past week
and a half, as they brace for further rate increases from the
Federal Reserve while expecting domestic inflation to hold below
the Fed's 2-percent target, analysts said.
    Uncertainty about whether Republicans in U.S. Congress will
pass tax cuts and other changes to federal tax code have made
such "curve-flattener" trades more appealing, they said, as have
diminished chances the government will introduce a Treasury bond
that matures beyond 30 years.
    "The flattening curve is reflecting all the pieces of this
jigsaw puzzle," said Sean Simko, senior portfolio manager at SEI
in Oaks, Pennsylvania. 
    While keen demand for longer-dated Treasuries raised
concerns that this week's 10-year and 30-year supply may be
pricy, Wednesday's auction results signaled investors were
willing accept 10-year yields hovering near three-week lows. 
    The ratio of bids to the amount of 10-year notes offered, a
proxy on overall auction demand, was 2.48, which was above its
12-month average.
    The Treasury Department will complete its November refunding
with a $15 billion auction of 30-year bonds at 1
p.m. (1800 GMT) on Thursday.
    Meanwhile, companies have raised more than $24 billion in 
investment-grade bonds so far this week, according to IFR, a
Thomson Reuters unit.    
    On the open market, the 10-year Treasury note yield
 rose 2.0 basis points at 2.327 percent after
touching a near three-week trough of 2.304 percent earlier
    The 30-year bond yield hovered at a near
six-week low reached on Tuesday. It was up 1.6 basis point at
2.786 percent in late U.S. trading.
    The two-year yield increased 1.6 basis points to
1.645 percent.  
    The yield spread between two-year and 10-year Treasuries
 was 68.0 basis points. Earlier in the session it
contracted to 66.7 basis points, the tightest since November
2007, Reuters data showed.
  Wednesday, Nov. 8 at 1520 EST (2020 GMT):
 US T BONDS DEC7               154-8/32     -0-14/32    
 10YR TNotes DEC7              125-56/256   -0-52/256   
                               Price        Current     Net
                                            yield       change
                                            (pct)       (bps)
 Three-month bills             1.21         1.2306      0.013
 Six-month bills               1.315        1.3422      0.010
 Two-year note                 99-182/256   1.6493      0.020
 Three-year note               99-242/256   1.7688      0.014
 Five-year note                99-248/256   2.0066      0.024
 Seven-year note               100-92/256   2.1941      0.026
 10-year note                  99-80/256    2.3289      0.022
 30-year bond                  99-60/256    2.7879      0.018
         YIELD CURVE           Last (bps)   Net change  
 10-year vs 2-year yield       67.80        -0.30       
 30-year vs 5-year yield       78.00        -0.75       
   DOLLAR SWAP SPREADS                                  
                               Last (bps)   Net change  
 U.S. 2-year dollar swap        19.25        -1.25      
 U.S. 3-year dollar swap        17.25        -3.00      
 U.S. 5-year dollar swap         6.75        -0.50      
 U.S. 10-year dollar swap       -3.00        -0.50      
 U.S. 30-year dollar swap      -26.50        -0.25      

 (Reporting by Richard Leong; Editing by Chizu Nomiyama)
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