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TREASURIES-Yields rise to 4-month highs ahead of Treasury auctions, Fed minutes
October 12, 2016 / 2:41 PM / a year ago

TREASURIES-Yields rise to 4-month highs ahead of Treasury auctions, Fed minutes

* Congested auction schedule of 3-, 10-year notes prompts
    * FOMC minutes to be released shortly after auctions
    * 10-year yields hit highest since June 3
    * 30-year bond yields hit highest since Brexit vote

    By Dion Rabouin
    NEW YORK, Oct 12 (Reuters) - U.S. Treasury yields rose to
their highest levels in four months on Wednesday, pressured by
incoming supply and growing expectations of an interest rate
increase from the Federal Reserve later this year.
    Concern that inflation could accelerate now that oil prices
are back above the $50 level added to selling pressure in
longer-dated Treasuries, with the yield on benchmark 10-year
notes above 1.80 percent for the first time since June 3 and
30-year bond yields touching their highest since the Brexit vote
later that month.
    Meanwhile, yields on shorter-dated maturities, such as 2-
 notes, which are more sensitive to Fed policy
expectations, rose to their highest since early June ahead of
the release at 2 p.m. (1800 GMT) of minutes from the U.S.
central bank's most recent meeting. 
    Investors will be looking for signs of deeper divisions
within the Federal Open Market Committee after three members
dissented at last month's meeting in favor of raising rates.
Interest rate futures imply around a 67 percent probability of
the Fed lifting rates at its December meeting.
    New bond supply was also a factor, with the U.S. government
set to auction $24 billion in 3-year notes and $20 billion in a
re-opening of 10-year notes at 11 a.m. (1500 GMT) and 12 p.m.
(1600 GMT), respectively.
    "Obviously it's been a very crowded week in terms of
Treasury supply," said Stan Sun, interest rates strategist at
Nomura Securities International in New York. In all, the market
must absorb $56 billion in supply, excluding T-bills.
    "All that is very congested in terms of bonds pressure and
the FOMC minutes sandwiched in the middle. I think that's
definitely causing pressure."
    Another $12 billion in a reopening of 30-year bonds will be
sold Thursday.
    Recent agreements between the Organization of the Petroleum
Exporting Countries and non-OPEC producers such as Russia have
helped oil prices climb back above $50 per barrel, and that is
fanning inflation worry among bond investors. Rising inflation
reduces the value of already held bonds.
    "With this latest increase in oil prices ... the market's
kind of focused on inflation coming back up to average," said
Ellis Phifer, market strategist at Raymond James in Memphis,
    The 10-year note was last down 8/32 in price to
yield 1.785 percent.
    The 30-year bond was last down 15/32 in price
to yield 2.512 percent. Yields rose as high as 2.529 percent,
the highest since June 23, the day of Britain's surprise vote to
exit the European Union.

 (Reporting by Dion Rabouin; Editing by Dan Burns and Frances

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