June 12, 2017 / 7:58 PM / 7 months ago

TREASURIES-Yields rise after debt auctions; Fed meeting awaited

    * Strong 3-year auction offset by tepid 10-year auction
    * 3-,2-year yields hit multi-week highs before auctions
    * Fed expected to hike rates Wednesday, future signaling

 (Updates prices, adds comment)
    By Sam Forgione
    NEW YORK, June 12 (Reuters) - U.S. Treasury yields rose on
Monday after tepid demand at a 10-year Treasury auction offset
strong demand at a three-year auction, while uncertainty about
the Federal Reserve's policy outlook on Wednesday limited the
move higher in yields. 
    Treasury yields fell after the U.S. Treasury Department sold
$24 billion in three-year government debt to the strongest
bidding in about 1-1/2 years, according to Treasury
    Three-year yields hit a session low of 1.478 percent, while
10-year yields hit a session low of 2.187 percent after the
auction. U.S. two-year yields had touched 1.359
percent, their highest in a month, while three-year yields
touched their highest since May 24 at 1.500 percent, ahead of
the auction. 
    Yields resumed their rise, however, after the Treasury sold
$20 billion of 10-year government notes to average demand at a
yield of 2.195 percent. That yield was higher than expected and
indicated more tepid appetite than that for the three-year
    "There may be a little reluctance to buy the 10-year at
these prices," said David Coard, head of fixed income sales and
trading at Williams Capital Group in New York, in reference to
the lukewarm demand. 
    The Treasury will sell $12 billion in 30-year bonds on
    Caution restrained the move higher in yields as traders
awaited the Fed's two-day meeting beginning on Tuesday. While an
interest rate increase from the Fed is widely expected, the
central bank's forecasts for future rate hikes and hints of
potential balance sheet reduction are uncertain and will be
closely watched.
    "Wednesday’s meeting is pretty much a high-risk event," said
Charles Comiskey, head of Treasuries trading at Bank of Nova
Scotia in New York.
    Analysts said the Fed could take the hawkish stance of
hinting it could taper its balance sheet later this year while
also hiking rates again in December. Conversely, a more dovish
stance is also seen as possible, in part due to recent signs of
softening inflation.
    Benchmark 10-year Treasuries were last down 3/32
in price to yield 2.211 percent, from a yield of 2.199 percent
late on Friday. U.S. 30-year yields were last at
2.866 percent, compared to 2.853 percent late on Friday, ahead
of Tuesday's auction. 
    U.S. three-year Treasuries were last down 1/32 in
price to yield 1.489 percent, compared to 1.478 percent late on
      June 12 Monday 3:45PM New York / 1945 GMT
 US T BONDS SEP7               154-2/32     -0-5/32   
 10YR TNotes SEP7              126-88/256   -0-20/25  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.9825       0.9985    -0.008
 Six-month bills               1.095        1.1162    -0.008
 Two-year note                 99-204/256   1.355     0.020
 Three-year note               100-10/256   1.4861    0.008
 Five-year note                99-224/256   1.7764    0.013
 Seven-year note               99-224/256   2.0193    0.012
 10-year note                  101-120/256  2.2092    0.010
 30-year bond                  102-180/256  2.8648    0.012
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        19.25        -1.50    
 U.S. 3-year dollar swap        18.00        -0.75    
 U.S. 5-year dollar swap         7.25        -0.75    
 U.S. 10-year dollar swap       -5.25        -0.50    
 U.S. 30-year dollar swap      -43.50        -0.50    
 (Reporting by Sam Forgione; Editing by Meredith Mazzilli)
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