February 6, 2018 / 7:16 PM / in a year

TREASURIES-Prices gain in choppy trading as stocks stay volatile

 (Adds auction results, quote; Updates prices)
    * Prices volatile on concern about bond, stocks selloff
    * Soft demand for $26 bln three-year note auction
    * Mid-March T-bill yields rise on debt ceiling concern

    By Karen Brettell
    NEW YORK, Feb 6 (Reuters) - U.S. Treasury debt prices gained
on the day on Tuesday as volatile equity markets led some
investors to seek out lower risk bonds, though many investors
remained nervous after a week long bond rout sent yields on
Monday to four-year highs.
    Bonds have been roiled in the past week on fears that the
Federal Reserve will adopt a more aggressive rate hike policy as
inflation data improves.
    The pace of market moves, however, has worried some traders
and analysts who say pockets of illiquidity and algorithmic
trading are also creating volatility.
    “I do think that there is some element of inflation, but it
couldn’t be the only thing,” said Thomas Simons, a money market
economist at Jefferies in New York.
    Benchmark 10-year yields            surged to 2.885 percent
in overnight trading on Monday, the highest since January 2014,
before falling as low as 2.707 percent as stock selloff hastened
in the New York afternoon session.             
    The notes were last up 11/32 in price on the day on Tuesday
to yield 2.755 percent. They have risen from a low of 2.654
percent on Jan 29.
    Investors are also nervous about bond yields as the Treasury
Department is due to significantly increase issuance this year
to make up for declining Fed purchases.
    “"If the equity market starts to calm a little bit here in
the near-term I think people will start to focus a lot more on
the supply issue," said Michael Schumacher, head of rate
strategy at Wells Fargo in New York.
    The United States saw soft demand for a $26 billion sale of
three-year notes on Tuesday, the first sale of $66 billion in
coupon-bearing supply this week.             
    The Treasury will also sell $24 billion in 10-year notes on
Wednesday and $16 billion in 30-year bonds on Thursday. 
    Large increases in issuance this year are expected after the
government raises the debt ceiling.
    Yields on bills due in mid-March have increased above some
maturities due at a later date as investors worry that Congress
may delay raising the debt limit, which could risk a government
default on its debt payments.
    The Congressional Budget Office said last Wednesday it
thought the government would run out of cash to pay its bills in
the first half of March.             
    Yields on six-month Treasury bills due on March 8
             are yielding 1.45 percent, 7 basis points higher
than similar debt due on March 15             .

 (Editing by Chizu Nomiyama)
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