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TREASURIES-U.S. bond yields climb before three-year auction
May 9, 2017 / 1:53 PM / in 6 months

TREASURIES-U.S. bond yields climb before three-year auction

    * Growing U.S. corporate supply pressures yields
    * Expectations for more rate hikes also underpin yield rise
    * U.S. 30-year yield hits highest level since late March

    By Richard Leong
    NEW YORK, May 9 (Reuters) - U.S. Treasury yields climbed on
Tuesday, with benchmark yields reaching a five-week peak before
a $24 billion auction of a three-year government debt issue in
what will be the first leg of this week's $62 billion quarterly
    Investors were making room in their portfolios not only for
Treasuries supply but also new corporate bond issues.
    Companies raised more than $10 billon in the
investment-grade market on Monday, with more on the way. Junk
bond issuance experienced a spike, according to IFR, a Thomson
Reuters unit.
    In addition to supply pressure, bond yields have risen on
investors' reduction of safe-haven holdings in Treasuries
following centrist Emmanuel Macron's victory in the French 
presidential election on Sunday.
    With this closely-watched European election out of the way,
investors turned their attention back to U.S. economic
fundamentals and how they would influence the pace of Federal
Reserve interest rate increases in 2017, analysts said.
    "It's the refocus on the Fed's intention to raise rates,"
said Jim Vogel, interest rate strategist at FTN Financial in
Memphis, Tennessee.
    Interest rates futures implied traders saw an 88 percent the
Fed would raise its benchmark overnight rate by a quarter of a
percentage point to a range of 1.00 percent to 1.25 percent at
its June 13-14 policy meeting, up from 83 percent
at Monday's close, according to CME Group's FedWatch tool.
    Last week, the U.S. central bank's policy-setting committee
left the door open for further rate hikes, downplaying anemic
economic growth in the first quarter.
    A solid April payrolls report that showed the U.S. jobless
rate reaching near a 10-year low augured the case for a possible
rate increase this summer, analysts said.
    In early trading on Tuesday, the benchmark 10-year Treasury
yield was up nearly 3 basis points at 2.403 percent,
just below a five-year high of 2.405 percent set earlier in the
    The 30-year bond yield was up about 2 basis
points at 3.033 percent after touching its highest level since
March 31, according to Reuters data.   
    In "when-issued" activity, traders expected the upcoming
three-year note issue to sell at a yield of 1.561
percent, compared with 1.525 percent at the prior auction,
according to Tradweb.
    After the three-year note sale at 1 p.m. EDT (1700 GMT), the
Treasury Department will sell $23 billion in 10-year Treasuries
 on Wednesday and $15 billion in 30-year bonds
 on Thursday. It will use some of the proceeds to
repay $49.7 billion to investors on maturing bonds
 May 9 Tuesday 9:31 AM New York / 1331 GMT
 US T BONDS JUN7               150-27/32    -0-15/32  
 10YR TNotes JUN7              124-220/256  -0-52/25  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.9          0.9146    0.000
 Six-month bills               1.0175       1.037     0.005
 Two-year note                 99-208/256   1.3466    0.017
 Three-year note               99-224/256   1.5437    0.020
 Five-year note                99-192/256   1.9279    0.028
 Seven-year note               98-160/256   2.2138    0.027
 10-year note                  98-172/256   2.4032    0.027
 30-year bond                  99-84/256    3.0343    0.019
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        27.50        -1.50    
 U.S. 3-year dollar swap        24.25        -0.75    
 U.S. 5-year dollar swap         8.50        -0.75    
 U.S. 10-year dollar swap       -6.75        -0.50    
 U.S. 30-year dollar swap      -45.50        -0.50    

 (Reporting by Richard Leong; Editing by Paul Simao)

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