May 14, 2015 / 6:46 PM / 2 years ago

TREASURIES-Yields fall as supply eases; German debt steadies

(Recasts with auction, adds quote, details, updates prices)
    * Treasury sells $16 bln 30-yr bonds to tepid demand
    * Five-year, 30-year yield curve steepest since Oct. 29
    * German debt stabilizes, helping Treasuries

    By Karen Brettell
    NEW YORK, May 14 (Reuters) - U.S. Treasuries ended stronger
on Thursday, even after the Treasury had to pay more to sell new
30-year bonds, as an overhang of government and corporate debt
supply passed.
    The government's $16 billion sale of 30-year bonds saw
lackluster demand, resulting in a yield of 3.044 percent, the
highest since November and around two basis points above where
traders had expected it to price.
    "It was a sizable tail, but I don't think it was terrible,"
said Justin Lederer, an interest rate strategist at Cantor
Fitzgerald in New York. "We rallied two basis points going in,
it tailed two basis points, so it wasn't like it was out of the
realm. It was right in the middle of today's trading range."
    Thirty-year bonds continued to underperform other Treasury
issues after the auction. The yield curve between five-year
notes and 30-year bonds steepened to 155 basis
points, it's steepest since Oct. 29.
    Treasury yields have jumped in the past two-and-a-half weeks
in line with a dramatic sell-off in German government debt,
which has been roiled by a rapid unwind of bets placed on the
European Central Bank's debt purchase program as well as other
factors.
    Higher yields may have helped lure some buyers to the
Treasury's other auctions this week, including a $24 billion
sale of 10-year notes on Wednesday that sold to strong demand,
and a solid $24 billion sale of three-year notes on Tuesday.
    German bonds were relatively steady on Thursday, helping to
support U.S. government debt.
    "Trading is calming down in Europe," said Jim Vogel, an
interest rate strategist at FTN Financial in Memphis, Tennessee.
"Yields still aren't improving, but the frenzy is less, so that
helps Treasuries disconnect from the sharp rise in Europe."
    Benchmark 10-year note yields fell to 2.26
percent from 2.27 percent late on Wednesday.
    Data on Thursday also showed U.S. producer prices resumed
their downward trend in April as the cost of energy fell and a
strong dollar kept underlying inflation pressures benign,
supporting views that the Federal Reserve will only raise
interest rates later in the year. 
    

 (Editing by Lisa Von Ahn and Paul Simao)

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