Bonds News

TREASURIES-Yields rise after Fed disappoints on yield curve control

 (Recasts with release of Fed meeting minutes and auction
results, updates yields, adds analysts' comments)
    By Karen Pierog and Karen Brettell
    Aug 19 (Reuters) - U.S. Treasury yields rose on Wednesday
after minutes from the Federal Reserve's July meeting indicated
that yield caps or targets were not on the horizon. 
     The benchmark 10-year yield was last up less
than a basis point at 0.6752%. 
    Many Fed policymakers determined that yield caps or targets
were not warranted at this time but should remain an option for
the future, according to the minutes.
    "It seems the market is quite displeased with the discussion
about yield curve control specifically," said Tom Simons, a
money market economist at Jefferies in New York.
    He added that the minutes suggest it is not likely to happen
this year unless something significant changes either in the
market or in the economy.
    If the Fed will not be engaging in yield curve control
"these ultra-low yield levels that we've seen for the last
couple of months maybe aren't quite as appropriate especially in
light of how much supply Treasury is pumping into the market,"
Simons said.
    Meanwhile, the U.S. Treasury sold $25 billion of 20-year
bonds at a high yield of 1.185%, which was around a basis point
higher than where the debt was trading before the auction. The
bid to cover ratio was 2.26 times.
    "It was a pretty weak auction," said Kim Rupert, senior
economist at Action Economics in San Francisco. "I expected poor
results after the fairly disappointing 30-year. There wasn’t
much of a backup over the last couple of days with the Treasury
market rallying after a big selloff last week."
    The 20-year yield was last up 1.5 basis points
at 1.1658%.
    The auction marked the fourth and largest since the U.S.
Treasury began offering 20-year bonds in May for the first time
since 1986. It also followed last week's auction of $26 billion
of 30-year bonds that was met with weak demand.
    A closely watched part of the U.S. Treasury yield curve
measuring the gap between yields on two- and 10-year Treasury
notes, which is viewed as an indicator of
economic expectations, was last at 53 basis points, nearly a
basis point higher than at Tuesday's close.
August 19 Wednesday 1:45PM New York / 1845 GMT Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.1          0.1014    -0.005
 Six-month bills               0.12         0.1217    0.000
 Two-year note                 99-247/256   0.1431    -0.002
 Three-year note               99-226/256   0.1644    -0.008
 Five-year note                99-222/256   0.2771    -0.002
 Seven-year note               99-82/256    0.4746    0.003
 10-year note                  99-132/256   0.6752    0.006
 20-year bond                  99-72/256    1.1658    0.015
 30-year bond                  99-4/256     1.4154    0.016
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap         6.75        -0.75    
 U.S. 3-year dollar swap         5.50        -0.50    
 U.S. 5-year dollar swap         3.75        -0.75    
 U.S. 10-year dollar swap       -2.25        -0.50    
 U.S. 30-year dollar swap      -41.25         0.00    
 spread (Reporting by Karen Pierog in Chicago and Karen Brettell in New
York; Editing by Will Dunham and Kirsten Donovan)