September 27, 2018 / 2:36 PM / 3 months ago

REFILE-TREASURIES-U.S. bond yields little changed before 7-year note sale

 (Adds dropped word "raise" in paragraph six)
    * U.S. to sell $31 bln 7-year notes at 1 p.m. 
    * Yield curve holds near flattest in over a week
    * U.S. core capital goods unexpectedly fall in August
    * U.S. GDP growth unrevised at 4.2 pct in 2nd-quarter

    By Richard Leong
    NEW YORK, Sept 27 (Reuters) - U.S. Treasury yields were
little changed on Thursday, with the yield curve hovering at its
flattest levels in more than a week, as investors reduced some
bond holdings to make room for $31 billion of seven-year
government note supply.
    Bond yields climbed modestly in the wake of data that
reinforced a view of solid economic growth. They had fallen
earlier Thursday on safe-haven demand tied to worries about the
Italian government's struggle to reach a budget deal.
 
    A government report showed gross domestic product grew at a
4.2 percent clip in the second quarter, the fastest in nearly
four years. Another report stated durable goods rose 4.5 percent
in August, rebounding from a revised 1.2 percent drop the month
before.
    Other government data released on Thursday signaled a wider
deficit in goods trade in August and a slight pickup in jobless
claims last week. 
    The latest spate of economic figures generally supported the
outlook from the Federal Reserve, which, as expected, raised key
short-term interest rates for a third time in 2018 on Wednesday.
    Central bank policy-makers hinted they would raise overnight
borrowing costs further into 2020, with the next increase
possibly at their Dec. 18-19 meeting.
    "They are moving just as planned," said Sean Simko, head of
global fixed income management at SEI in Oaks, Pennsylvania.
"The economy is going well and inflation is contained."
    At 10:12 a.m. (1412 GMT), benchmark 10-year Treasury yield
 was down 0.2 basis point at 3.059 percent. On
Tuesday, it reached 3.113 percent, its highest since May,
Reuters data showed.
    The 30-year yield edged up 0.2 basis point to
3.193 percent after hitting a four-month peak of 3.249 percent
on Tuesday.
    Two-year yields gained 0.4 basis point to 2.831
percent after touching 2.847 percent on Tuesday, which was last
seen in June 2008.
    The spread between two-year and 10-year yields
 narrowed to 22.8 basis points after hitting 21.8
basis points earlier Thursday, the tightest level in over a
week.
    In "when-issued" activity, traders expected the latest
seven-year Treasuries supply to sell at a yield
of 3.026 percent, which would be the highest yield at an auction
since April 2010.
    Earlier this week, sales of two-year and five-year
Treasuries fetched poor demand amid investor caution before the
Fed's latest rate increase.     
September 27 Thursday 10:10AM New York / 1410 GMT
                               Price                  
 US T BONDS DEC8               140-15/32    -2/32     
 10YR TNotes DEC8              118-188/256  0/32      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2.16         2.2019    -0.010
 Six-month bills               2.32         2.38      0.005
 Two-year note                 99-214/256   2.8351    0.008
 Three-year note               99-150/256   2.8966    0.006
 Five-year note                99-158/256   2.958     0.000
 Seven-year note               98-80/256    3.0218    0.000
 10-year note                  98-108/256   3.0611    0.000
 30-year bond                  96-64/256    3.1956    0.005
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       22.40        -0.50     
 30-year vs 5-year yield       23.70        0.20      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        16.75        -0.25    
 spread                                               
 U.S. 3-year dollar swap        16.50        -0.50    
 spread                                               
 U.S. 5-year dollar swap        12.25         0.25    
 spread                                               
 U.S. 10-year dollar swap        6.00         0.00    
 spread                                               
 U.S. 30-year dollar swap       -6.75        -0.25    
 spread                                               
 
          

 (Reporting by Richard Leong; Editing by Bernadette Baum)
  
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