March 7, 2017 / 8:42 PM / 7 months ago

TREASURIES-U.S. bond yields rise, 3-year note sale average

    * U.S. sells $24 bln 3-year debt to mediocre demand
    * Yield rise underpinned by bets on Fed rate hike next week
    * ADP U.S. private jobs data on tap at 8:15 a.m. Wednesday

 (Updates market action; adds quote)
    By Richard Leong
    NEW YORK, March 7 (Reuters) - U.S. Treasury yields rose on
Tuesday, with the 30-year yield at its highest level in over a
month as skittishness that the Federal Reserve will raise
interest rates next week led to a lackluster sale of $24 billion
of three-year government notes.
    The Treasury Department will auction $20 billion in 10-year
debt on Wednesday and $12 billion in 30-year
bonds on Thursday.
    "It's hard to take this much duration risk before the Fed,"
said Aaron Kohli, interest rates strategist at BMO Capital
Markets in New York.
    Investors are awaiting clues on the economy, culminating
with the government's payrolls report for February, which is due
on Friday, to determine whether a rate hike at the upcoming Fed
meeting is a done deal.
    Bond yields jumped last week in reaction to comments from
U.S. central bank officials, including Fed Chair Janet Yellen,
which spurred traders to raise their bets that the Fed will lift
interest rates by a quarter of a percentage point, to 0.75-1.00
percent, at its two-day policy meeting on March 14-15.
         
    Fed officials said the U.S. economy is close to achieving
full employment and to reaching the Fed's 2 percent inflation
goal.
    On Wednesday, payroll processor ADP will release its private
employment report. Analysts polled by Reuters forecast companies
likely added 190,000 workers last month versus 246,000 in
January.
    "The conditions for the Fed to increase rates have been
there for some time," said Bryce Doty, senior portfolio manager
at Sit Fixed Income Advisors LLC in Minneapolis.
    Interest rate futures implied traders have priced in an 84
percent chance the Fed will raise rates at the upcoming meeting
, unchanged from late Monday, CME Group's FedWatch
tool showed.    
    Lofty expectations on a pending U.S. rate increase curbed
bidding at Tuesday's three-year note auction, the first part of
this week's $56 billion in coupon-bearing Treasury supply,
analysts said.
    The three-year note issue was sold at a yield of 1.630
percent, the highest at a three-year auction in nearly seven
years.
    On the open market, the yield on benchmark 10-year Treasury
notes was up 2 basis points at 2.514 percent, while
the 30-year yield was up nearly 2 basis points at
3.114 percent after touching its highest level since Feb. 3,
Reuters data showed.
March 7 Tuesday 3:28PM New York / 2028 GMT
                               Price                  
 US T BONDS JUN7               148-25/32    -0-9/32   
 10YR TNotes JUN7              123-112/256  -0-40/25  
                                            6         
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.7475       0.7593    0.007
 Six-month bills               0.845        0.8604    0.010
 Two-year note                 99-154/256   1.3297    0.021
 Three-year note               99-86/256    1.6069    0.025
 Five-year note                99-50/256    2.0458    0.032
 Seven-year note               98-164/256   2.3372    0.024
 10-year note                  97-180/256   2.5124    0.019
 30-year bond                  97-208/256   3.1128    0.016
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        31.50        -1.25    
 spread                                               
 U.S. 3-year dollar swap        25.25        -1.25    
 spread                                               
 U.S. 5-year dollar swap         8.25        -1.50    
 spread                                               
 U.S. 10-year dollar swap       -5.50        -1.50    
 spread                                               
 U.S. 30-year dollar swap      -41.75        -1.50    
 spread                                               
 
    

    
 (Reporting by Richard Leong; Editing by Dan Grebler and Leslie
Adler)
  

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