February 21, 2018 / 8:10 PM / 8 months ago

TREASURIES-Yields rise 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. 2-year hits 9-year high; 30-year yields touch highest
since
July 2015

 (Recasts, changes byline, adds auction results, analyst
comment, table, updates prices in text)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Feb 21 (Reuters) - U.S. Treasury yields rose 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. 30-year yields, which move inversely to prices, hit
their highest level since July 2015 after the Fed minutes, while
those on 10-year notes hit session peaks. 
    Yields on U.S. two-year notes, the maturity most sensitive
to interest rate expectations, hit fresh 9-1/2-year highs
earlier in the session.
    The Federal Reserve's rate-setting committee showed more
confidence in the need to keep raising interest rates at its
last policy meeting, with most believing that inflation would
perk up. 
    It added 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."
    "There was not a whole lot of surprise in the grand scheme
of things," said Michael Skordeles, U.S. macro strategist at
Suntrust Advisory Services in Atlanta.
    "It lined up with market expectations for a continued
gradual pace in interest rate hikes. (The minutes) reassured
that there won't really be a whole lot of change despite having
a regime change," he added.
    In mid-afternoon trading, U.S. 10-year Treasury yields
 were at 2.931 percent, up from Tuesday's close at
2.893 percent.
    The U.S. 30-year bond yield touched 3.218 percent
, the highest since July 2015, up from Tuesday's
3.155 percent.   
    The yield on the two-year Treasury note was at
2.266 percent after hitting a nine-year peak of 2.282 percent
earlier in the day. 
    The Treasury market showed little reaction to an average $35
billion U.S. 5-year note auction, which was part of the week's
$258 billion issuance intended to help fund President Donald
Trump's tax overhaul and a two-year budget deal. 
    The tax overhaul signed into law in December is expected to
add as much as $1.5 trillion to the federal debt load, while the
budget agreement would raise government spending by almost $300
billion over the next two years.
    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. 
    The auction showed direct bidders taking 12.7 percent, the
highest since August 2017. Indirect bidders took 58 percent of
the offer, the smallest since April 2017, and dealers took 29.3
percent.
    
      February 21 Wednesday 2:58PM New York / 1958 GMT
                               Price                  
 US T BONDS MAR8               142-26/32    -1-2/32   
 10YR TNotes MAR8              120-60/256   -0-64/25  
                                            6         
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.6175       1.6467    -0.007
 Six-month bills               1.8075       1.8495    -0.006
 Two-year note                 99-246/256   2.2701    0.009
 Three-year note               99-124/256   2.4303    0.016
 Five-year note                98-162/256   2.6721    0.024
 Seven-year note               97-200/256   2.8546    0.036
 10-year note                  98-104/256   2.9353    0.042
 30-year bond                  95-224/256   3.2154    0.060
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        26.00        -0.75    
 spread                                               
 U.S. 3-year dollar swap        23.75         1.75    
 spread                                               
 U.S. 5-year dollar swap        12.50         2.75    
 spread                                               
 U.S. 10-year dollar swap        2.75         1.75    
 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)
  
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