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TREASURIES-Strong 30-year bond auction pushes yields lower

 (Recasts, updates yields, adds analyst comments)
    By Karen Pierog
    CHICAGO, April 13 (Reuters) - U.S. Treasury yields fell and
the yield curve flattened on Tuesday in the wake of solid demand
for a 30-year bond auction, although next week's offering of
20-year bonds could be rocky.
    The benchmark 10-year yield was last down 5.8
basis points at 1.618% and the 30-year yield was 5
basis points lower at 2.2977%.
    The $24 billion of 30-year bonds were sold at a high yield
of 2.320% and with a bid-to-cover ratio, a gauge of demand, of
an above-average 2.47 times.
    Analysts at Jefferies called the results "fabulous," as well
as "quite surprising given the lack of concession that led up to
the bidding deadline."
    The offering followed Monday's relatively smooth auctions of
three- and 10-year notes totaling $96 billion. 
    "The market breathed a bit of a sigh of relief after the
30-year (auction), but now the question becomes the 20-year
(auction) next week," said Gennadiy Goldberg, senior U.S. rates
strategist at TD Securities.
    He pointed out there were no changes in the plan the New
York Federal Reserve Bank released on Tuesday to purchase about
$80 billion of Treasuries between April 14 and May
13.
    "The (20-year) auction could struggle a little bit given
that the expectation was that the Fed will be buying probably $3
billion more in that seven- to 20-year space," Goldberg said. 
    The market has been focusing on auctions after a poor
showing for a seven-year note offering in February sparked a run
up in yields.
    Earlier on Tuesday, a move higher in yields that lifted the
10-year to 1.703% abated after U.S. federal health agencies
recommended pausing the use of Johnson & Johnson's
COVID-19 vaccine due to concerns related to blood clots.

    Yields also eased after consumer prices data showed that
while underlying inflation picked up in March, it was not wildly
rising as feared.
    With the economy getting a boost from the coronavirus
vaccine rollout and massive fiscal stimulus, the consumer price
index jumped 0.6% last month, the largest gain since August
2012, after rising 0.4% in February, the U.S. Labor Department
said on Tuesday. Core CPI, excluding food and energy prices,
rose 0.3%, after edging up 0.1% in February and was up 1.6% on a
year-on-year basis.
    Zachary Griffiths, macro strategist at Wells Fargo in
Charlotte, North Carolina, said that while yields have climbed
on expectations of much higher inflation, the data showed that
"inflation isn't running away anytime soon and it's not going to
cause the (U.S Federal Reserve) to reassess its approach to
monetary policy in the near future." 
     The 10-year Treasury Inflation-Protected Securities
 breakeven inflation rate rose to as high as 2.352%
after the CPI data. It was last at 2.327%.
    The two-year Treasury yield, which typically
moves in step with interest rate expectations, was last a basis
point lower at 0.1609%. 
    A closely watched part of the yield curve that measures the
gap between yields on two- and 10-year Treasury notes 
 was flatter following the auction. It was last 4.16
basis points lower at 145.71 basis points.
    Looking ahead to Wednesday, the Fed will release its Beige
Book, a compendium of data and anecdotes gathered by each of the
12 regional Fed banks on current economic conditions, based on
surveys of and interviews with key business contacts.
    Kelly Ye, director of research at IndexIQ, a unit of New
York Life Investments, said the report will provide "more color"
and "will be also a very important input in terms of people's
assessment for the Treasury market."
    
    April 13 Tuesday 4:34PM New York / 2034 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.02         0.0203    -0.003
 Six-month bills               0.0425       0.0431    0.002
 Two-year note                 99-238/256   0.1609    -0.010
 Three-year note               100-18/256   0.3514    -0.031
 Five-year note                99-146/256   0.8386    -0.053
 Seven-year note               99-196/256   1.2853    -0.059
 10-year note                  95-136/256   1.618     -0.058
 20-year bond                  94-220/256   2.196     -0.045
 30-year bond                  90-232/256   2.2977    -0.050
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        11.50        -0.25    
 spread                                               
 U.S. 3-year dollar swap        11.50        -3.00    
 spread                                               
 U.S. 5-year dollar swap         9.25        -1.25    
 spread                                               
 U.S. 10-year dollar swap        0.25        -1.50    
 spread                                               
 U.S. 30-year dollar swap      -25.00        -2.25    
 spread (Reporting by Karen Pierog, additional reporting by Gertrude
Chavez-Dreyfuss in New York; Editing by Steve Orlofsky and
Jonathan Oatis)
  
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