June 17, 2020 / 7:23 PM / 17 days ago

TREASURIES-Treasury sells 20-year bonds to strong demand

 (Recasts with auction, adds quotes, updates prices)
    By Karen Brettell
    NEW YORK, June 17 (Reuters) - The U.S. Treasury saw strong
demand for its second sale of 20-year bonds on Wednesday, as
yields fell broadly in choppy trading on concerns about new
outbreaks of the coronavirus.
    The Treasury sold $17 billion of the 20-year bonds for a
high yield of 1.314%, around two basis points lower than where
they had traded before the auction.
    “The auction went very well and the statistics point to a
deepening investor base at the 20-year tenor,” said Jon Hill, an
interest rate strategist at BMO Capital Markets in New York.
    The government saw tepid demand for its first sale of the
bonds in May. It relaunched the bond as it increases debt
issuance to finance spending meant to blunt the economic impact
from the coronavirus.
    Yields on the 20-year bonds fell three basis
points on the day to 1.287%. 
    Yields fell across the curve on concerns that new outbreaks
of the coronavirus will hurt the chances of a quick economic
recovery, with a new breakout in Beijing and a rising tide of
cases in U.S. states that are reopening their economies.

    “If that leads to a big shift in household or investor
sentiment, one could see a snap lower in equities and a flight
to quality in rates,” said Hill.
    Benchmark 10-year yields fell two basis points
to 0.733%.
    The yield curve between two-year and 10-year notes
 flattened two basis points to 53 basis points.
    With a full U.S. economic recovery out of reach until the
coronavirus pandemic is brought to heel, the Federal Reserve
will use its "full range of tools" to cushion households and
businesses, Fed Chair Jerome Powell told lawmakers on Wednesday.

    Data on Wednesday showed U.S. homebuilding increased less
than expected in May, but a strong rebound in permits for future
home construction suggested the housing market was starting to
emerge from the COVID-19 crisis along with the broader economy.

    Bonds had gained a safety bid overnight as tensions between
North Korea and South Korea increased. There have also been
clashes between Indian and Chinese troops at a disputed border
site.
    
    June 17 Wednesday 3:00PM New York / 1900 GMT
                               Price                  
 US T BONDS SEP0               176-7/32     0-17/32   
 10YR TNotes SEP0              138-152/256  0-40/256  
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.175        0.1775    0.005
 Six-month bills               0.1775       0.1801    -0.008
 Two-year note                 99-220/256   0.1972    -0.006
 Three-year note               100-18/256   0.2264    -0.011
 Five-year note                99-144/256   0.3392    -0.011
 Seven-year note               99-168/256   0.5505    -0.019
 10-year note                  98-248/256   0.7331    -0.021
 20-year bond                  97-40/256    1.2874    -0.025
 30-year bond                  93-124/256   1.522     -0.016
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         6.50         0.00    
 spread                                               
 U.S. 3-year dollar swap         4.25        -0.25    
 spread                                               
 U.S. 5-year dollar swap         3.50        -1.00    
 spread                                               
 U.S. 10-year dollar swap       -3.00        -1.00    
 spread                                               
 U.S. 30-year dollar swap      -51.00        -1.25    
 spread                                               
                                                      
 
 (Reporting by Karen Brettell; editing by Bernadette Baum and
Jonathan Oatis)
  
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