September 5, 2017 / 2:32 PM / 6 months ago

TREASURIES-North Korea worries send U.S. bond yields lower

    * Oct T-bill yields elevated on debt ceiling concerns
    * Companies seen selling $35 bln-$40 bln in high-grade debt
    * Fed should be cautious as inflation stays weak -Fed's

    By Richard Leong
    NEW YORK, Sept 5 (Reuters) - U.S. Treasury yields fell on
Tuesday as worries about further nuclear tests from North Korea
that stoked tensions with United States and its allies spurred
safe-haven demand for U.S. government debt.
    Yields on Treasury bills due in October remained elevated as
investors await developments on whether U.S. lawmakers would
reach a deal to increase the debt ceiling in a bid to avert a
    "Right now the safe-haven bid is clearly in place as North
Korea did a 'H-bomb' test over the weekend," Larry Milstein,
head of government and agency trading at R.W. Pressprich & Co in
New York.
    On Sunday, North Korea said it tested an advanced hydrogen
bomb for a long-range missile, prompting global condemnation and
a U.S. warning of a "massive" military response if it or its
allies were threatened.
    Traders and analysts said the decline in U.S. yields was
partly offset by hedging activity tied to an expected $35
billion to $40 billion worth of investment-grade corporate bond
supply to hit this week according to IFR, a Thomson Reuters
    Meanwhile, Federal Reserve Governor Lael Brainard said the
U.S. central bank should be cautious about raising key overnight
borrowing costs further as inflation has been stuck below its 2
percent goal.
    On the other hand, Brainard suggested she was prepared to
back the announcement of the Fed's plan to announce a reduction
of its $4.2 trillion bond holdings at its upcoming Sept. 19-20
    At 10:10 a.m. (1410 GMT), the yield on benchmark 10-year
Treasury notes was down 5 basis points at 2.105
percent, while the 30-year bond yield was more than
4 basis points lower at 2.722 percent.
    The yield on T-bills due on Oct. 5, the first
debt issue that the government might skip repaying if the debt
ceiling is not raised before a late September deadline, was at
1.200 percent, down 4 basis points from late on Friday.
    U.S. financial markets were closed on Monday for the Labor
Day holiday.
  September 5 Tuesday 10:12AM New York / 1412 GMT
 US T BONDS DEC7               156-12/32    1-6/32    
 10YR TNotes DEC7              127-36/256   0-120/25  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.9825       0.9985    -0.013
 Six-month bills               1.0725       1.0931    -0.003
 Two-year note                 99-226/256   1.31      -0.036
 Three-year note               100-62/256   1.4155    -0.043
 Five-year note                99-188/256   1.6808    -0.052
 Seven-year note               99-164/256   1.9302    -0.056
 10-year note                  101-80/256   2.1029    -0.054
 30-year bond                  100-152/256  2.7208    -0.047
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        21.75         1.25    
 U.S. 3-year dollar swap        18.75         0.75    
 U.S. 5-year dollar swap         6.00         0.25    
 U.S. 10-year dollar swap       -5.50        -0.25    
 U.S. 30-year dollar swap      -35.00        -0.25    

 (Reporting by Richard Leong; Editing by Meredith Mazzilli)
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