August 8, 2018 / 1:54 PM / 10 months ago

TREASURIES-U.S. yields little changed before record 10-year supply

    * U.S. to sell record $26 bln in 10-year notes 
    * Data point to bearish bets against 10-year notes
    * Fed's Barkin says U.S. rates need to rise further

    By Richard Leong
    NEW YORK, Aug 8 (Reuters) - U.S. Treasury yields were little
changed on Wednesday in advance of the government's record $26
billion sale of 10-year notes, which is the second leg of this
week's $78 billion in quarterly refunding.
    The 10-year auction followed mediocre demand for $34 billion
worth of 3-year debt on Tuesday.
    Analysts expect solid demand for the latest 10-year supply
at 1 p.m. (1700 GMT) as 10-year yields rose from two-week lows
reached on Monday when investors sought a safe haven due to
trade friction between China and the United States.
    Expectations of further interest rate increases from the
Federal Reserve, domestic growth and inflation likely to at
least stall at current levels and lower bond yields in other
parts of the world should also stoke investor demand at the
upcoming 10-year auction, analysts said.
    "For the auction, we believe there will be decent demand
around the current yield levels as longer maturities remain more
attractive given the Fed, growth/inflation expectations and
global yields," Cantor Fitzgerald Treasury strategist Justin
Lederer wrote in a research note.
    On the other hand, survey and positioning data suggested 
investors and traders are not keen on snapping up longer-dated
    At 9:43 a.m. (1343 GMT), the yield on benchmark 10-year
Treasury notes was 2.969 percent, marginally lower
than late on Tuesday.
    Last week, the 10-year yield reached a 10-week peak at 3.016
percent before retreating to a two-week trough at 2.925 percent
on Monday.
    In "when-issued" activity, traders expected the 10-year
supply would sell at a yield of 2.964 percent,
up from 2.859 percent at the prior 10-year auction in July,
Tradeweb data showed. 
    Washington's tough trade stance against China poses a risk
to economic growth, which would keep a lid on longer-dated
Treasury yields, analysts said.
    On Wednesday, Beijing is imposing additional import tariffs
of 25 percent on $16 billion worth of U.S.-made goods in
response to the Trump administration's decision to slap a 25
percent levy on another $16 billion of Chinese imports on Aug.
    Richmond Federal Reserve President Thomas Barkin
acknowledged growing concerns over tariffs, but maintained the
domestic economy is growing fast enough to warrant further
increases in short-term rates.
    Interest rates futures implied traders saw a 98 percent
chance the U.S. central bank would raise overnight bank
borrowing costs by a quarter point to 2.00-2.25 percent at its
Sept. 25-26 policy meeting, CME Group's FedWatch program showed.
    This would mark the Fed's third rate increase in 2018.  
August 8 Wednesday 9:43AM New York / 1343 GMT
 US T BONDS SEP8               142-18/32    -1/32     
 10YR TNotes SEP8              119-128/256  1/32      
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             2.0225       2.0611    0.005
 Six-month bills               2.18         2.2349    0.000
 Two-year note                 99-236/256   2.6656    -0.008
 Three-year note               99-250/256   2.7582    -0.013
 Five-year note                99-158/256   2.8329    -0.008
 Seven-year note               99-188/256   2.9173    -0.007
 10-year note                  99-48/256    2.9711    -0.002
 30-year bond                  100-24/256   3.12      0.002
         YIELD CURVE           Last (bps)   Net       
 10-year vs 2-year yield       30.30        0.40      
 30-year vs 5-year yield       28.60        1.10      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        20.25        -0.25    
 U.S. 3-year dollar swap        17.00        -1.00    
 U.S. 5-year dollar swap        12.75        -0.50    
 U.S. 10-year dollar swap        5.00        -0.75    
 U.S. 30-year dollar swap       -7.50        -1.25    

 (Reporting by Richard Leong; editing by Jonathan Oatis)
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