May 1, 2018 / 3:07 PM / a year ago

TREASURIES -Yields rise ahead of U.S. refunding announcement

    * U.S. ISM index slips, but prices paid rise
    * U.S. Treasury to announce refunding on Wednesday

 (Recasts, adds comment, details, refunding plan, byline, table;
updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, May 1 (Reuters) - U.S. Treasury yields rose on
Tuesday, with prices pressured ahead of a quarterly refunding
announcement that is expected to show more supply as the
government aims to generate financing for its massive tax cut
program and increased fiscal spending plan.
    The U.S. Treasury is scheduled to announce its findings on a
 refunding survey on Wednesday, with analysts projecting an
increase in auction sizes, or new issuance at different points
on the yield curve.
    "This is the most important refunding announcement because
we expect big changes," said Gennadiy Goldberg, interest rates
strategist at TD Securities in New York. 
    "Obviously, the government has to fund themselves. The last
time we had funding needs like these was during the financial
    The $665 billion deficit for fiscal year 2017 will rise to
about $800 billion this year and jump to $1.1 trillion in 2019,
a result of the last year's tax deal and an early 2018 spending
agreement, TD Securities said. 
    TD expects the Treasury to increase auction sizes to $32
billion for U.S. 3-year notes, $25 billion for the 10-year and
$17 billion for 30-year bonds.
    Expectations about increased government debt supply at
Wednesday's refunding have undermined Treasury prices, analysts
    With the 10-year yield hitting 3 percent, analysts wondered
whether the refunding plan has already been priced in. 
    "The market risks would appear either neutral or bearish
around that announcement, especially if the Treasury were to add
more to the longer maturity auction profile," Westpac said in a
research note.
    U.S. Treasury yields briefly extended gains after details of
a U.S. report on manufacturing showed rising inflationary
    The Institute for Supply Management posted a manufacturing
sector PMI index of 57.3 for April, lower than the consensus
forecast and below March's level. But the prices paid component
was 79.3, the highest since April 2011.
    "The overall index was a bit lower than expected, probably
due in part at least to trade war jitters, although 57.3 is
quite high — high enough to signal strength in manufacturing,"
said Jim O'Sullivan, chief U.S. economist at High Frequency
    "The price-related parts of the report, including supplier
delivers, are suggesting tight markets," he added.
    In late morning trading, U.S. benchmark 10-year yields were
at 2.977 percent, up from Monday's 2.936 percent.
    U.S. 30-year bond yields also rose, to 3.142 percent
, up from 3.096 percent late Monday.
    On the front end of the curve, U.S. two-year yields inched
up to 2.516 percent, up from 2.488 percent on Monday.
      May 1 Tuesday 10:44AM New York / 1444 GMT
 US T BONDS JUN8               143-1/32     -0-26/32  
 10YR TNotes JUN8              119-96/256   -0-64/25  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.8225       1.8565    -0.012
 Six-month bills               1.99         2.0381    0.000
 Two-year note                 99-186/256   2.5164    0.028
 Three-year note               99-58/256    2.6487    0.034
 Five-year note                99-174/256   2.8192    0.030
 Seven-year note               99-156/256   2.9372    0.037
 10-year note                  98-16/256    2.9793    0.043
 30-year bond                  97-52/256    3.1452    0.049
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        24.25        -1.25    
 U.S. 3-year dollar swap        20.75        -0.75    
 U.S. 5-year dollar swap        11.00        -0.25    
 U.S. 10-year dollar swap        2.50        -0.50    
 U.S. 30-year dollar swap      -11.75        -0.75    
 (Reporting by Gertrude Chavez-Dreyfuss
Editing by Chizu Nomiyama and Dan Grebler)
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