March 26, 2018 / 7:40 PM / 8 months ago

TREASURIES-U.S. bond yields rise on record supply, stock gains

    * Wall Street rebound pares safe-haven bond holdings
    * U.S. yield curve flattens after lukewarm 2-year note sale
    * U.S. to sell $35 bln 5-year notes, $24 bln 1-year bills
Tuesday

 (Updates market action, adds quote, table)
    By Richard Leong
    NEW YORK, March 26 (Reuters) - U.S. Treasury yields rose and
the yield curve flattened on Monday following a lackluster
two-year note auction, in a test of investor appetite following
last week's strong run spurred by nervousness about a global
trade war.
    The $30 billion two-year note supply, together with $51
billion in three-month bills and $45 billion in six-month bills,
were part of this week's record high $294 billion of debt.
    The Treasury Department has ratcheted up its debt issuance
to fund higher federal spending tied to a two-year budget deal
that was approved in February, and to make up for an expected
drop in revenues due to the massive tax overhaul enacted in
December.
    The bond market was also under pressure on a recovery in
Wall Street stocks on reduced worries about a trade war.

    "People are concerned with supply," said Thomas Roth, head
of U.S. Treasury trading at MUFG Securities America in New York.
"People are leaning on the short side with bonds, but you still
have trade concerns."
    The yield on 10-year Treasury notes rose 2.4
basis points to 2.850 percent. It hit a six-week low of 2.792
percent on Friday.
    The modest selling in Treasuries on Monday was offset by
lingering worries about trade tension between United States and
its trading partners, although White House officials have aimed
to soothe that anxiety, traders and analysts said. 
    On Friday, China urged the United States to "pull back from
the brink" after Trump said he planned tariffs on up to $60
billion in Chinese goods, and the Chinese commerce ministry
warned that the country "doesn't hope to be in a trade war, but
is not afraid of engaging in one."
    Then White House trade adviser Peter Navarro on Monday told
CNBC television the United States was in talks with China in an
effort to address its trade practices.
    Easing worries about a trade war propelled U.S. stock prices
higher and reduced the safe-haven appeal of Treasuries. They
also reduced bets the Federal Reserve might slow its pace of
interest rate increases if equities were to deteriorate further,
analysts said.
    This view curbed bidding at the latest two-year note auction
and prompted fed traders to favor longer-dated Treasuries,
flattening the yield curve. 
    The yield gap on five-year and 30-year Treasuries
 flattened 2.1 basis points to 44.10 basis points.
    On Tuesday, the Treasury will sell $35 billion in five-year
notes and $24 billion in one-year bills
.
    
  Monday, March 26 at 1528 EDT (1928 GMT):
                               Price                   
 US T BONDS JUN8               144-18/32    -0-5/32    
 10YR TNotes JUN8              120-104/256  -0-52/256  
                               Price        Current    Net
                                            Yield      Change
                                            (pct)      (bps)
 Three-month bills             1.715        1.746      0.018
 Six-month bills               1.8775       1.9213     0.010
 Two-year note                 99-240/256   2.2829     0.021
 Three-year note               99-208/256   2.4407     0.031
 Five-year note                99-236/256   2.6418     0.034
 Seven-year note               99-216/256   2.7748     0.026
 10-year note                  99-40/256    2.8483     0.022
 30-year bond                  98-116/256   3.0794     0.005
                                                       
   DOLLAR SWAP SPREADS                                 
                               Last (bps)   Net        
                                            Change     
                                            (bps)      
 U.S. 2-year dollar swap        33.00         0.75     
 spread                                                
 U.S. 3-year dollar swap        27.00         0.00     
 spread                                                
 U.S. 5-year dollar swap        14.75         0.00     
 spread                                                
 U.S. 10-year dollar swap        3.25         0.50     
 spread                                                
 U.S. 30-year dollar swap      -15.25         0.50     
 spread                                                
 
    
    
    

 (Reporting by Richard Leong; Editing by Andrew Hay and Tom
Brown)
  
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