* Month-end bond rebalancing offsets mild Q1 GDP upgrade
* U.S. 2-, 10-year part of yield curve flattest in seven
* Traders see U.S. Fed on track to raise rates in June
* U.S. bond market closes early at 2 p.m. (1800 GMT)
(Updates market action, adds quote)
By Richard Leong
NEW YORK, May 26 U.S. Treasury yields held
steady in shortened trading on Friday as bond purchases for
month-end portfolio rebalancing offset news of a
larger-than-expected upward revision to gross domestic product
in the first quarter.
The struggle of the S&P 500 and Nasdaq
indexes to break above the record highs set on Thursday
underpinned some safe-haven demand for U.S. government debt
ahead of a holiday weekend, analysts said.
The U.S. bond market closed early at 2 p.m. EDT (1800 GMT)
and will be shut on Monday for the U.S. Memorial Day holiday.
"People are squaring up before the long weekend," said Kathy
Jones, chief fixed income strategist at Schwab Center for
Financial Research in New York.
Bond yields bounced in a tight range this week as investors
made room for a hefty amount of Treasury corporate supply. They
also received news on OPEC's plan to extend an oil output cut
and minutes on the Fed's May 2-3 policy meeting which signaled
policy-makers thinking on a possible reduction of its $4.5
trillion balance sheet.
"People were holding their breath before the Fed minutes and
the OPEC meeting and breathed a sigh of relief after getting
passed them," said Gene Tannuzzo, senior portfolio manager at
Columbia Threadneedle in Minneapolis.
The benchmark 10-year Treasury yield was down
0.5 basis point at 2.250 percent, ending marginally higher on
the week. It traded in a tight seven-basis-point range this week
on light trading volume, Reuters data showed.
The drop in the 10-year yield narrowed its gap with the
two-year yield to 95 basis points after reaching 93.6
basis points which was the tightest in seven months, according
This flattening of the yield curve suggests bets on faster
U.S. growth and inflation are fading as there have been little
progress in Washington on tax cuts and other economic stimulus.
Still Friday's data signaled the U.S. economy was expanding,
albeit at a modest clip. This may allow the Federal Reserve to
raise interest rates further and to begin paring its $4.5
trillion balance sheet.
Gross domestic product grew at a 1.2 percent annual rate in
the first quarter, faster than the 0.7 percent pace reported
last month, the Commerce Department said.
Rates futures implied traders saw an 88 percent chance the
Fed would increase rates by a quarter point to 1.00-1.25 percent
at its June 13-14 policy meeting, up from 83
percent on Thursday, CME Group's FedWatch program showed.
Friday, May 26 at 1410 EDT (1810 GMT):
US T BONDS JUN7 153-30/32 0-3/32
10YR TNotes JUN7 126-52/256 0-8/256
Price Current Net
Three-month bills 0.92 0.9348 0.003
Six-month bills 1.055 1.0753 0.000
Two-year note 99-232/256 1.2976 0.000
Three-year note 100-32/256 1.4566 0.000
Five-year note 99-206/256 1.791 0.002
Seven-year note 99-148/256 2.065 -0.002
10-year note 101-28/256 2.25 -0.005
30-year bond 101-172/256 2.9159 -0.005
DOLLAR SWAP SPREADS
Last (bps) Net
U.S. 2-year dollar swap 23.50 -0.25
S U.S. 3-year dollar swap 21.00 -0.50
U.S. 5-year dollar swap 8.50 0.00
U.S. 10-year dollar swap -5.25 0.25
U.S. 30-year dollar swap -43.75 0.50
(Editing by Lisa Von Ahn and Grant McCool)