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TREASURIES-North Korea worries send U.S. bond yields lower
September 5, 2017 / 2:32 PM / 3 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
-IFR
    * Fed should be cautious as inflation stays weak -Fed's
Brainard

    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
default.
    "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
unit.
    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
meeting. 
    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
                               Price                  
 US T BONDS DEC7               156-12/32    1-6/32    
 10YR TNotes DEC7              127-36/256   0-120/25  
                                            6         
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 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       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        21.75         1.25    
 spread                                               
 U.S. 3-year dollar swap        18.75         0.75    
 spread                                               
 U.S. 5-year dollar swap         6.00         0.25    
 spread                                               
 U.S. 10-year dollar swap       -5.50        -0.25    
 spread                                               
 U.S. 30-year dollar swap      -35.00        -0.25    
 spread                                               
 
    

 (Reporting by Richard Leong; Editing by Meredith Mazzilli)
  

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