February 6, 2018 / 2:26 PM / 8 months ago

TREASURIES-Prices gain in choppy trading as stocks stay weak

    * Prices volatile on concern about bond, stocks selloff
    * Treasury to sell $26 bln three-year notes
    * Mid-March T-bill yields rise on debt ceiling concern

    By Karen Brettell
    NEW YORK, Feb 6 (Reuters) - U.S. Treasury prices gained on
Tuesday as volatile equity markets led 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 probably swaying markets.
    “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.
    “Yields are adjusting, which is appropriate given supply,”
said Simons. “We are repricing for what should be a different
    The Treasury will sell $66 billion in notes and bonds this
week, including $26 billion in three-year notes on Tuesday, $24
billion in 10-year notes on Wednesday and $16 billion in 30-year
bonds on Thursday.             
    The United States will also sell $15 billion in four-week
bills on Tuesday, after cutting the size of the sale on Monday
amid concerns about demand as the country approaches its debt
    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 ceiling. This 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 1.435 percent, 5 basis points higher
than similar debt due on March 15             .

 (Editing by David Gregorio)
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