September 24, 2019 / 3:03 PM / 2 months ago

TREASURIES-U.S. yields fall in choppy trading ahead of debt supply

    By Gertrude Chavez-Dreyfuss
    NEW YORK, Sept 24 (Reuters) - Yields on long-dated U.S.
Treasury debt fell for a seventh straight session on Tuesday in
choppy trading, with investors caught between two competing
forces: heavy supply this week and upcoming month-end and
quarter-end portfolio rebalancing.
    The decline in yields came after a recent rise that took
benchmark U.S. 10-year yields to a five-week high near 2.0%.
    U.S. yields extended their decline after data showed a drop 
in consumer confidence in September.  
    Investors are also bracing for heavy government debt supply
this week totaling $113 billion. The Treasury will sell $40
billion in U.S. two-year notes later on Tuesday. 
    Market participants typically sell Treasuries going into an
auction to get a higher yield.
    At the same time, month-end and quarter-end rebalancing is
looming this week, which generally spurs buying. Money managers
who benchmark their bond portfolios to indexes have to align
their positions when new bonds are worked into those benchmarks
at the close of each month.
    "Trading has been really choppy and kind of directionless,"
said Tom Simons, economist at Jefferies in New York. "We have
two competing forces here for the market this week: the two-year
auction today; but we will also have the quarter-end and
month-end coming at the end of the week too."
    U.S. 10-year note yields fell to 1.669% from
1.708% late on Monday.
    Yields on 30-year bonds were also lower at
2.116%, from 2.153% on Monday.
    Jefferies' Simons also said volatility in the overnight
repurchase market may have contributed to some buying.
    The New York Federal Reserve on Tuesday awarded $75.0
billion in bids from primary dealers at an overnight repurchase
agreement (repo) operation. It also accepted $30 billion in
14-day term repos.
    "We still have some repo volatility even though the Fed has
sort of stabilized it here, but there's still a risk," Simons
said.
    Yields fell further after the Conference Board said
September's U.S. consumer confidence slid to 125.1, lower than
market expectations of a reading of 133.5, as well as August's
revised number at 135.1.
    U.S. 2-year yields were down at 1.650%, from
Monday's 1.669%.
    BMO Capital Markets said Tuesday's 2-year auction should go
well, similar to the note's sale last month.
    "Even though yields have fallen from the local peaks
achieved a few weeks ago, the bid has stabilized, and rates are
consolidating well off the low extremes set at the beginning of
the month," BMO said in a research note.
    "This has translated to a substantial cheapening in 2s...
and are at levels which will attract demand."
    
      September 24 Tuesday 10:19AM New York / 1419 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.905        1.9462    0.000
 Six-month bills               1.8725       1.922     0.005
 Two-year note                 99-183/256   1.6505    -0.018
 Three-year note               99-204/256   1.5701    -0.030
 Five-year note                98-146/256   1.5522    -0.030
 Seven-year note               98-110/256   1.6153    -0.034
 10-year note                  99-140/256   1.6748    -0.033
 30-year bond                  102-208/256  2.1224    -0.031
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        -2.00        -1.00    
 spread                                               
 U.S. 3-year dollar swap        -3.00        -0.25    
 spread                                               
 U.S. 5-year dollar swap        -6.50        -0.75    
 spread                                               
 U.S. 10-year dollar swap      -12.75        -0.50    
 spread                                               
 U.S. 30-year dollar swap      -43.00        -0.50    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Dan Grebler)
  
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