August 6, 2018 / 2:09 PM / 10 months ago

TREASURIES-U.S. bond yields slip before quarterly refunding

    * U.S. to sell $78 bln in debt for August refunding
    * Speculators build record net shorts in 5-yr, 10-yr T-notes

    By Richard Leong
    NEW YORK, Aug 6 (Reuters) - U.S. Treasury yields dipped on
Monday, with the 10-year yield holding below 3 percent on
moderate buying, in advance of this week's August refunding
where the government will sell $78 billion in coupon-bearing
    Federal borrowing has grown since March in the aftermath of
a massive tax cut in December and a two-year spending deal in
February. However, the government's increasing reliance on IOUs
to finance its spending and debt obligations has yet to hurt
demand for its securities.
    "Supply has created its own demand. There has not been a
problem," said Don Ellenberger, head of multi-sector strategies
at Federated Investors in Pittsburgh. "At what point that will
break the camel's back? We just don't know."
    This week's debt sales are expected to refund $38.2 billion
investors on maturing debt and to raise $39.8 billion in new
cash for the government.
    The U.S. Treasury Department will sell $34 billion in
three-year notes on Tuesday; $26 billion in
10-year debt on Wednesday and $18 billion in
30-year bonds on Thursday.
    Fund managers have loaded up on Treasuries as their yields
have ticked up, while speculators have accumulated a record
amount of bets that U.S. government debt will lose their value.
    Speculative net shorts on U.S. five-year and 10-year
Treasury futures reached all-time peaks last week, according to
Commitments of Traders data from the Commodity Futures Trading
Commission released on Friday.
    At 9:46 a.m. (1346 GMT), the benchmark 10-year Treasury
yield slipped nearly 2 basis points to 2.934
percent. The 10-year yield has retreated after breaking above 3
percent last week for the first time since late June, following
a mixed July payrolls jobs report.
    The decline in longer-dated Treasury yields flattened the
yield curve modestly, narrowing the gap between five-year and
30-year yields to 27.00 basis points. 
    The yield curve held above levels in July, when it was at
its flattest in over a decade.
    U.S. two-year yield was at 2.645 percent,
hovering at its highest in 10 years on expectations the Federal
Reserve would raise key overnight borrowing costs at its Sept.
25-26 policy meeting due to a tight labor market and signs of
inflation moving towards its 2-percent goal.
    "There's not much that would dissuade them from moving in
September," Ellenberger said.
August 6 Monday 9:48AM New York / 1348 GMT
 US T BONDS SEP8               143-13/32    14/32     
 10YR TNotes SEP8              119-192/256  5/32      
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.9775       2.0145    0.007
 Six-month bills               2.1675       2.2213    0.010
 Two-year note                 99-246/256   2.6452    0.000
 Three-year note               99-182/256   2.7277    -0.005
 Five-year note                99-194/256   2.8024    -0.014
 Seven-year note               99-240/256   2.8849    -0.017
 10-year note                  99-132/256   2.9321    -0.020
 30-year bond                  101-4/256    3.0725    -0.020
         YIELD CURVE           Last (bps)   Net       
 10-year vs 2-year yield       28.50        -1.70     
 30-year vs 5-year yield       27.00        -0.45     
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        21.75         0.25    
 U.S. 3-year dollar swap        19.00         0.25    
 U.S. 5-year dollar swap        14.50         0.00    
 U.S. 10-year dollar swap        7.00        -0.25    
 U.S. 30-year dollar swap       -4.75         0.00    

 (Reporting by Richard Leong; Editing by Bernadette Baum)
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