October 17, 2018 / 7:41 PM / a month ago

TREASURIES-U.S. bond yields rise as FOMC minutes hint at more rate hikes

    * FOMC minutes show all policy-makers back rate hike
    * U.S. housing starts fall short of forecast due to storms
    * U.S. mortgage applications hit lowest since late 2014 -MBA
    * Foreigners buy most Treasuries since 2015 in August -data

 (New throughout, updates yields, market activity and comments)
    By Richard Leong
    NEW YORK, Oct 17 (Reuters) - U.S. Treasury yields rose on
Wednesday as the Federal Reserve's minutes on its meeting last
month showed all policy makers agreed to raise key interest
rates for a third time in 2018 with many open to further rate
hikes.
    Shorter-dated yields ticked up a bit more than longer-dated
yields after the release of the Fed Sept. 25-26 minutes, briefly
flattening the yield curve. 
    The move faded as most traders still expect the Fed to stick
to gradual rate increases in an effort to keep the U.S. economy
from overheating.
    "We had a bit of a flattening bias. More officials are happy
to move past neutral," said Guy LeBas, chief fixed-income
strategist at Janney Montgomery Scott in Philadelphia. "There
was not a ton of surprises."
    There was some safe-haven buying of Treasuries as Wall
Street stocks fell, with the S&P 500 down 0.1 percent.

    The benchmark 10-year Treasury yield was 3.184
percent, up near 3 basis points from late Tuesday. The 30-year
yield was 3.354 percent, up 2 basis points. 
    Following a sell-off that took the 10-year yield to a 7-1/2
year peak of 3.261 percent last Tuesday, Treasury yields this
week have traded in a narrow range, with the 10-year yield
trading either side of 3.15 percent.
    Fed officials have signaled they may increase short-term
rates at their Dec. 18-19 meeting, which would lift their target
range on key borrowing costs to 2.25-2.50 percent.
    Rising interest rates seem to be taking a bite out of the
housing sector.
    Data showed U.S. home construction fell 5.3 percent last
month, but most analysts blamed storms, and projected building
activity would recover in coming months.
    Still, the Mortgage Bankers Association said its gauge on
weekly mortgage applications fell to its lowest level since
December 2014 as home loan rates climbed to their highest in
over seven years.
    Separately, Treasury data released late on Tuesday showed
foreigners bought $63 billion in Treasuries in August, the most
since June 2015. However, China and Japan, the top two foreign
owners of U.S. bonds, further reduced holdings.
October 17 Wednesday 3:25PM EDT/ 1925 GMT
                               Price                   
 US T BONDS DEC8               138-1/32     -0-15/32   
 10YR TNotes DEC8              118-4/256    -0-52/256  
                               Price        Current    Net
                                            Yield %    Change
                                                       (bps)
 Three-month bills             2.265        2.3097     0.000
 Six-month bills               2.4075       2.471      0.008
 Two-year note                 99-190/256   2.8864     0.020
 Three-year note               99-184/256   2.9739     0.022
 Five-year note                99-58/256    3.0443     0.027
 Seven-year note               99-48/256    3.1308     0.028
 10-year note                  97-104/256   3.1842     0.028
 30-year bond                  93-100/256   3.3521     0.022
                                                       
   DOLLAR SWAP SPREADS                                 
                               Last (bps)   Net        
                                            Change     
                                            (bps)      
 U.S. 2-year dollar swap        19.00        -0.50     
 spread                                                
 U.S. 3-year dollar swap        17.00        -0.75     
 spread                                                
 U.S. 5-year dollar swap        13.00         0.00     
 spread                                                
 U.S. 10-year dollar swap        6.00         0.25     
 spread                                                
 U.S. 30-year dollar swap       -8.00         0.50     
 spread                                                
 
    
 (Reporting by Richard Leong; Editing by Bernadette Baum, Susan
Thomas and David Gregorio)
  
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