August 9, 2018 / 2:48 PM / in 7 months

TREASURIES-U.S. yields fall ahead of record 30-year auction

    * U.S. to sell record $18 bln in 30-year bonds at 1 p.m. 
    * July PPI falls short of forecast before CPI report Friday

    By Richard Leong
    NEW YORK, Aug 9 (Reuters) - U.S. Treasury yields fell on
Wednesday in advance of a record-setting $18 billion 30-year
bond sale, the final leg of this week's $78 billion in the
government's quarterly debt refunding.
    The 30-year auction followed solid demand for $26 billion of
10-year notes sold on Wednesday.
    Earlier Thursday, a 30-year Japanese government bond auction
drew firm buying from investors.
    Persistent demand from pension funds to ensure steady income
to meet their future payouts, as well as relatively attractive
U.S. yields, will likely stoke bids for the latest 30-year
issue, analysts said.
    "We should see decent demand," said Guy LeBas, chief fixed
income strategist at Janney Montgomery Scott in Philadelphia.
    He cautioned that if the 30-year yield does not rise from
its session low before the 1 p.m. (1700 GMT) bidding deadline,
it reduces the appeal of the latest 30-year supply. 
    In "when-issue" activity, traders expected the upcoming
30-year issue to sell at a yield of 3.095
percent, Tradeweb data showed. This was higher than the 2.958
percent yield at the prior 30-year auction in July.
    At 10:23 a.m. (1423 GMT) on the open market, the 30-year
yield was down 2 basis points at 3.097 percent,
while the benchmark 10-year yield was more than 2
basis points lower at 2.940 percent. 
    Longer-dated U.S. yields have risen in the past month partly
on speculation over whether the Bank of Japan would scale back
its five-year-old ultra loose policy to support its economy. 
    Last week, the BOJ pledged to maintain its massive stimulus
program, and made some policy adjustments, including toleration
of a rise in the yield on the domestic 10-year bond
to about 0.20 percent, from 0.10 percent previously.

    The BOJ's stimulus plan and European Central Bank's 2.55
trillion euro bond program are seen playing major roles in
holding down U.S. bond yields.
    Mild domestic inflation, together with Federal Reserve's
rate-increase campaign, have also supported demand for
longer-dated U.S. Treasuries, analysts said.
    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 10:25AM New York / 1425 GMT
 US T BONDS SEP8               143-1/32     13/32     
 10YR TNotes SEP8              119-184/256  7/32      
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             2.0125       2.0508    -0.005
 Six-month bills               2.1825       2.2374    0.002
 Two-year note                 99-240/256   2.6575    -0.016
 Three-year note               100-6/256    2.7418    -0.027
 Five-year note                99-182/256   2.8126    -0.025
 Seven-year note               99-228/256   2.8924    -0.029
 10-year note                  99-112/256   2.9403    -0.026
 30-year bond                  100-140/256  3.0966    -0.021
         YIELD CURVE           Last (bps)   Net       
 10-year vs 2-year yield       28.20        -0.45     
 30-year vs 5-year yield       28.30        0.60      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        19.50        -0.25    
 U.S. 3-year dollar swap        17.00         0.25    
 U.S. 5-year dollar swap        12.50         0.00    
 U.S. 10-year dollar swap        5.50         0.25    
 U.S. 30-year dollar swap       -7.25         0.00    

 (Reporting by Richard Leong; Editing by Steve Orlofsky)
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