August 9, 2018 / 6:49 PM / 2 months ago

TREASURIES-U.S. bond yields slip as refunding ends with fair 30-year sale

    * U.S. sells record $18 bln in 30-year bonds to average
demand
    * July PPI falls short of forecast before CPI report Friday
    * Fed's Evans sees up to two more rate hikes in 2018 as
reasonable
    * Analysts see emerging market turbulence contained for now

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, Aug 9 (Reuters) - U.S. Treasury yields declined on
Wednesday as average demand at a record-setting $18 billion
30-year bond auction supported the view investors are willing to
own U.S. government debt even as its borrowing needs will grow
further.
    The latest 30-year issue was the final part of this week's
$78 billion in the government's quarterly debt refunding which
was estimated to raise nearly $40 billion in new cash.

    Some analysts and traders were concerned whether investors
would step up to buy the ever increasingly pile of Treasuries as
the government has ramped up its borrowing to finance a budget
gap that has widened due to the massive tax cut in December and
a two-year spending deal in February. 
    "It's relief that the auctions are now over. We didn't have
a bloodbath," said Karl Haeling, vice president at Landesbank
Baden-Wurttemberg in New York. "Demand at the refunding came in
pretty good."
    The results at the 30-year auction were not stellar, but
they were perceived among analysts to be strong enough to spur
buying on the open market.
    Traders who had bearish bets on longer-dated Treasuries
before the refunding likely bought bonds to close out those
positions, analysts said.
    While not seen as a major concern for now, traders are
monitoring developments in emerging markets as the Turkish lira
 tumbled a record low and the Russian rouble hit
its weakest level in about two years.
    At 2:19 p.m. (1819 GMT) amid light trading volume, benchmark
10-year Treasury yield was down 3 basis points at
2.933 percent, while the 30-year yield was down 4
basis points at 3.079 percent.
    Mild domestic inflation, together with Federal Reserve's
rate-increase campaign, have also supported demand for
longer-dated U.S. Treasuries, analysts said.
    Chicago Fed President Charles Evans said on Thursday the
U.S. economy is doing "very well" and saw one or two more
interest rate increases in 2018.
    The U.S. Labor Department said on Thursday producer prices
were unchanged in July, falling short of a 0.2 percent increase
expected by analysts polled by Reuters.
    The PPI report precedes the release of the consumer price
index in July at 8:30 a.m. (1230 GMT) on Friday. 
    Economists forecast that the CPI likely rose by 0.2 percent
last month, bringing its year-over-year increase to 3.0 percent.
The core CPI, which excludes volatile food and energy prices, is
expected to increase 2.3 percent from a year earlier.
August 9 Thursday 2:24PM New York / 1824 GMT
                               Price                  
 US T BONDS SEP8               143-12/32    24/32     
 10YR TNotes SEP8              119-188/256  8/32      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2.01         2.0482    -0.008
 Six-month bills               2.18         2.2348    0.000
 Two-year note                 99-242/256   2.6534    -0.021
 Three-year note               100-6/256    2.7418    -0.027
 Five-year note                99-184/256   2.8109    -0.027
 Seven-year note               99-236/256   2.8874    -0.034
 10-year note                  99-128/256   2.9331    -0.033
 30-year bond                  100-240/256  3.0765    -0.042
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       27.80        -0.80     
 30-year vs 5-year yield       26.50        -1.20     
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        19.50        -0.25    
 spread                                               
 U.S. 3-year dollar swap        16.50        -0.25    
 spread                                               
 U.S. 5-year dollar swap        12.50         0.00    
 spread                                               
 U.S. 10-year dollar swap        5.75         0.50    
 spread                                               
 U.S. 30-year dollar swap       -6.50         0.75    
 spread                                               
 
     

    
 (Reporting by Richard Leong; Editing by Steve Orlofsky and
Diane Craft)
  
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