August 8, 2018 / 7:35 PM / 9 days ago

TREASURIES-U.S. yields steady on solid demand for record 10-year supply

    * Record $26 bln 10-year auction fetches solid demand 
    * U.S. to end refunding with record $18 bln 30-year sale
    * Fed's Barkin says U.S. rates need to rise further

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, Aug 8 (Reuters) - U.S. Treasury yields held firm
on Wednesday as investors bought a hefty chunk of the record $26
billion sale of 10-year notes, the second leg of this week's $78
billion in quarterly refunding.
    Expectations of more interest rate increases from the
Federal Reserve spurred investor demand at the 10-year auction,
analysts said. They also cited U.S. economic fundamentals and
lower bond yields in other parts of the world .
    The 10-year sale followed mediocre demand for $34 billion in
three-year debt on Tuesday.
    The U.S. Treasury will complete its refunding with a record
$18 billion in 30-year bonds at 1 p.m. (1700 GMT) on Thursday.
    "I think there is still good demand out there for U.S.
government debt even with expectations that more supply is still
to come," said Andrew Richman, director of fixed income at
SunTrust Advisory Services in Jupiter, Florida. "It should go
well for the 30-year (auction) tomorrow."
    Demand for the 10-year auction was firmer than expected.
Indirect bidders which include fund managers and foreign central
banks bought 61.27 percent of supply, smaller than the prior
10-year auction in July but in line with the recent average.

    The ratio of bids to the amount of 10-year note offered
edged down to 2.55, the lowest reading since April.
    A new 10-year issue again failed to produce at least a 3
percent coupon rate, a level last seen in July 2010.
    On the open market, the benchmark 10-year Treasury yield 
 was 2.971 percent, marginally lower on the day. It
touched a session low of 2.958 percent shortly after the
auction.
    Washington's trade war with China could hurt economic
growth, which would pressure longer-dated Treasury yields,
analysts said. Beijing said it was imposing additional tariffs
of 25 percent on $16 billion worth of U.S.-made
imports.
    Richmond Federal Reserve President Thomas Barkin
acknowledged growing concerns over tariffs, but said U.S. 
economic growth still warranted further increases in short-term
rates.
    Interest rates futures implied traders saw a 96 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.  
    
   Wednesday, Aug. 8, at 1511 EDT (1911 GMT):
                               Price                  
 US T BONDS SEP8               142-20/32    1/32      
 10YR TNotes SEP8              119-128/256  1/32      
                               Price        Current   Net
                                            Yield     Change
                                            (pct)     (bps)
 Three-month bills             2.015        2.0534    -0.003
 Six-month bills               2.18         2.2349    0.000
 Two-year note                 99-232/256   2.6738    0.000
 Three-year note               99-242/256   2.7691    -0.002
 Five-year note                99-152/256   2.838     -0.003
 Seven-year note               99-184/256   2.9198    -0.004
 10-year note                  99-48/256    2.9711    -0.002
 30-year bond                  100-36/256   3.1176    0.000
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       29.50        -0.40     
 30-year vs 5-year yield       27.90        0.40      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        19.50        -1.00    
 spread                                               
 U.S. 3-year dollar swap        16.50        -1.50    
 spread                                               
 U.S. 5-year dollar swap        12.75        -0.50    
 spread                                               
 U.S. 10-year dollar swap        5.00        -0.75    
 spread                                               
 U.S. 30-year dollar swap       -7.25        -1.00    
 spread                                               
 
    
 (Reporting by Richard Leong; editing by Jonathan Oatis and
David Gregorio)
  
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