July 24, 2018 / 6:58 PM / a month ago

UPDATE 1-U.S. 2-year debt cost hits decade high after Trump's remarks

(Recasts lead, adds background on Trump’s rate-hike view)

NEW YORK, July 24 (Reuters) - The U.S. government on Tuesday paid investors and dealers the highest interest in a decade to finance its borrowing for two years in the wake of President Donald Trump’s criticism last week about the Federal Reserve’s current rate-hike campaign.

The Treasury Department sold $35 billion of two-year government notes at a yield of 2.657 percent, the highest at an auction of this maturity since July 2008, Treasury data showed.

The auction marked the first sale of coupon-bearing securities since Trump told CNBC television last Thursday that he was “not thrilled” about rising interest rates and worried about their possible drag on the U.S. economy, which is forecast to post robust growth in the second quarter.

Given the rosy economic backdrop, traders have priced in about a 65 percent possibility the Fed would raise key overnight borrowing costs two more times in 2018 to between 2.25 and 2.50 percent, CME Group’s FedWatch program showed.

Trump also said in his CNBC interview that a strong U.S. dollar “puts us at a disadvantage.”

On Tuesday, the Treasury also sold $55 billion of one-month bills at an interest rate of 1.880 percent, unchanged from the prior week.

The government’s finance department will sell $36 billion of five-year notes on Wednesday and $30 billion of seven-year notes on Thursday. It will also auction $18 billion in two-year floating-rates on Wednesday.

The Treasury has been increasing its borrowing to finance an expected increase in its budget gap as a result of the massive tax cuts enacted last December and a two-year spending agreement passed in February.

Some analysts raised concerns the growing federal debt load would make holding Treasuries riskier.

Overseas purchases bought fewer securities at a series of Treasury auctions held earlier this month, Treasury data released on Monday showed.

Two weeks later, the latest two-year Treasury sale fetched the strongest overall demand in six months as the high yield on the supply likely enticed yield-hungry investors, analysts said.

The ratio of bids to the amount of two-year Treasuries offered was 2.92, the highest reading since January. This gauge of overall auction demand was 2.73 at the previous two-year note sale in June. (Reporting by Richard Leong; Editing by Bernadette Baum and James Dalgleish)

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