February 21, 2018 / 8:50 PM / in 4 months

TREASURIES-Yields climb as Fed minutes back multiple rate hike view

    * Treasury's auction of U.S. five-year notes saw average
demand
    * Fed minutes show FOMC expectation of upside growth
trajectory
    * U.S. 10-year hits four-year high
    * U.s. 30-year yields touch highest since July 2015

 (Adds details on yield, corporate bond supply; updates prices
in text, table)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Feb 21 (Reuters) - U.S. Treasury yields surged on
Wednesday in choppy trading, after minutes of the latest Federal
Reserve meeting affirmed expectations of further rate increases
this year, with economic growth seen accelerating.
    U.S. benchmark 10-year note yields, which move inversely to
prices, touched a more than four-year high, after the Fed
minutes, while 30-year yields, hit their highest level since
July 2015 after the Fed minutes.
    Earlier in the session, yields on U.S. two-year notes, the
maturity most sensitive to rate expectations, hit the highest in
more than nine years.
    The Fed minutes showed that recent information received by
voting members on inflation "along with prospects for a
continued solid pace of economic activity provided support for
the view that inflation ... would likely move up in 2018."

    "It lined up with market expectations for a continued
gradual pace in interest rate hikes," said Michael Skordeles,
U.S. macro strategist at Suntrust Advisory Services in Atlanta.
    In late trading, U.S. 10-year Treasury yields
were at 2.957 percent, their highest since January 2014. They
were last at 2.946 percent, up from Tuesday's close at 2.893
percent.
    The U.S. 30-year bond yield touched 3.233 percent
, the highest since July 2015. It was last at 3.227
percent from Tuesday's 3.155 percent.
    The underperformance of long-dated Treasuries could also be
due to a slew of upcoming corporate bond supply, most of them
long-dated as well, said Action Economics in its blog on
Wednesday. The research firm cited Boeing Inc, which has a $1.4
billion four-tranche offering in 5-, 10-, 20-, and 30-year
maturities, as well as Western Gas, which has a $1.1 billion 10-
and 30-year deal. 
    Investors tend to sell Treasuries to make room for corporate
bonds in fixed-income portfolios.
    The yield on the two-year Treasury note was at
2.274 percent after hitting a peak of 2.282 percent, the most in
more than nine years. 
    The Treasury market showed little reaction to an average $35
billion U.S. 5-year note auction, part of the week's $258
billion issuance intended to help fund President Donald Trump's
tax overhaul and a two-year budget deal. 
    Demand from investors was fair, analysts said.
    The Treasury notes sold at a yield of 2.658 percent versus
2.660 percent at the bid's close, with a 2.44 bid-to-cover
ratio, slightly below last month's 2.48.
    
    Wednesday, Feb. 21 at 1536 EST (2036 GMT):
                               Price                   
 US T BONDS MAR8               142-20/32    -1-8/32    
 10YR TNotes MAR8              120-36/256   -0-88/256  
                               Price        Current    Net
                                            Yield      Change
                                            (pct)      (bps)
 Three-month bills             1.6225       1.6518     -0.002
 Six-month bills               1.8125       1.8547     0.000
 Two-year note                 99-244/256   2.2741     0.013
 Three-year note               99-118/256   2.4385     0.024
 Five-year note                98-148/256   2.6841     0.036
 Seven-year note               97-184/256   2.8647     0.046
 10-year note                  98-80/256    2.9463     0.053
 30-year bond                  95-172/256   3.2263     0.071
                                                       
   DOLLAR SWAP SPREADS                                 
                               Last (bps)   Net        
                                            Change     
                                            (bps)      
 U.S. 2-year dollar swap        26.75         0.00     
 spread                                                
 U.S. 3-year dollar swap        24.50         2.50     
 spread                                                
 U.S. 5-year dollar swap        12.75         3.00     
 spread                                                
 U.S. 10-year dollar swap        2.50         1.50     
 spread                                                
 U.S. 30-year dollar swap      -16.75         0.00     
 spread                                                
 
 (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by
Kate Duguid and April Joyner; Editing by Meredith Mazzilli and
David Gregorio)
  
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