April 12, 2017 / 7:30 PM / 9 months ago

TREASURIES-U.S. bond yields flat as geopolitical worries offset supply

    * U.S. sells $12 billion 30-year bonds to soggy bids
    * Worries about overseas conflicts underpin bond demand
    * Hopes for less tension after Russia, China comments
    * U.S. bond market to close at 2 p.m. EDT Thursday

 (Update market action, add quote)
    By Richard Leong
    NEW YORK, April 12 (Reuters) - U.S. Treasury yields were
little changed on Wednesday as safe-haven demand tied to
international political worries offset investors selling to make
room for this week's $56 billion in coupon-bearing government
bond supply.
    Investor anxiety about possible U.S. military showdowns
against Syria and North Korea remained at elevated levels as
they piled into Treasuries, sending the 30-year yield briefly to
a near three-month low.
    "The geopolitical tension has not escalated, but it's not
going away either," said Mary Anne Hurley, vice president of
fixed income at D.A. Davidson in Seattle.
    U.S. President Donald Trump signaled he was open to more
strikes against Syria after he ordered a missile attack on a
Syrian air base in response to an alleged Syrian military
assault using poisonous gas that killed scores of civilian. 
    North Korea warned of a nuclear attack on the United States
for any sign of aggression as a U.S. Navy strike group was 
moving toward the Korean Peninsula.
    Adding to investor worries was a tightening French
presidential race on April 23. Opinion polls stirred concern 
that hard-left candidate Jean-Luc Melenchon and far-right leader
Marine Le Pen, who are both anti-EU, could end up in a runoff
next month.
    There was some relief as U.S. Secretary of State Rex
Tillerson's closely watched visit to Russia did not lead to a
heightening of tensions. 
    Russian Foreign Minister Sergei Lavrov said some progress
had been made on Syria after holding talks with Tillerson.

    Also, some in the market cited Chinese President Xi
Jinping's phone call with Trump, in which Xi stressed the need
for a peaceful solution for the Korean peninsula.
    In light, choppy trading, U.S. benchmark 10-year Treasury
yields were down 0.7 basis point at 2.291 percent,
which was below 2.300 percent seen as a critical technical
trading level.
    The 30-year bond yield was down marginally at
2.925 percent after falling to 2.915 percent earlier Wednesday,
which was the lowest since Jan. 17.       
    While worries about military flare-ups in Syria and the
Korean peninsula heated up safe-haven bids for Treasuries,
investors gave a cool reception to $12 billion worth of 30-year
bond supply, traders said.
    The bond market is signaling modest inflation risk as
possible federal tax cuts and infrastructure spending have yet
to be enacted, which would make long-dated bonds less appealing.
    "The market is still complacent about inflation," said
Kathleen Gaffney, co-director of diversified fixed income at
Eaton Vance in Boston.
    The U.S. bond market will shut early at 2 p.m. EDT (1800
GMT) on Thursday ahead of the market holiday on Good Friday.
   Wednesday, April 12 at 1504 EDT (1904 GMT):
 US T BONDS JUN7               153-3/32     0-4/32    
 10YR TNotes JUN7              125-132/256  0-8/256   
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.8025       0.8153    -0.008
 Six-month bills               0.925        0.9423    -0.003
 Two-year note                 100-8/256    1.2338    0.000
 Three-year note               100-30/256   1.4598    -0.003
 Five-year note                100-60/256   1.8253    -0.007
 Seven-year note               100-28/256   2.108     -0.002
 10-year note                  99-164/256   2.2908    -0.024
 30-year bond                  101-128/256  2.9242    -0.006
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        32.25         0.00    
 U.S. 3-year dollar swap        24.75        -0.25    
 U.S. 5-year dollar swap        10.25         0.25    
 U.S. 10-year dollar swap       -4.00         0.25    
 U.S. 30-year dollar swap      -40.50         0.00    

 (Reporting by Richard Leong; Editing by Chizu Nomiyama)
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