December 27, 2018 / 7:14 PM / 6 months ago

TREASURIES-Prices gain on safety buying as stock rally fades

 (Adds data, auction results, updates prices)
    * Dramatic equity rally fizzles
    * Treasury sells $32 bln seven-year notes to strong demand
    * Consumer confidence lowest since July

    By Karen Brettell
    NEW YORK, Dec 27 (Reuters) - U.S. Treasury yields fell on
Thursday as the previous session's dramatic rally in stocks ran
out of steam, reviving demand for low-risk U.S. government debt.
    U.S. stocks slid back the day after a spectacular rally
lifted the blue-chip Dow Jones Industrial Average more than
1,000 points in one day for the first time ever. That came after
the S&P 500 index on Monday tumbled to the brink of a bear
    "The market traded well overnight as equities came off and
it feels like a little bit of a bid here," said Justin Lederer,
an interest rate strategist at Cantor Fitzgerald in New York.
    Stocks have been hurt on concerns that continuing Federal
Reserve interest rate hikes will slow the economy, a move that
has benefited bond prices.
    Interest rate futures traders are now only partially pricing
in one rate hike for all of 2019, according to the CME Group's
FedWatch Tool.
    A measure of U.S. consumer confidence posted its sharpest
decline in more than three years in December, rattling investors
already nervous about the prospect of a slowdown.             
    A partial shutdown of the federal government is adding to
economic uncertainty.
    U.S. President Donald Trump said on Tuesday the shutdown
would last until his demand for funds to build a wall on the
U.S.-Mexico border is met.             
    Thin liquidity after the Christmas holiday on Tuesday and
before the New Year holiday next Tuesday has added to
    "A lot of people’s books are closed and it’s not going to be
the most active. Moves can be exacerbated just given the time of
year," Lederer said.
    Benchmark 10-year notes             gained 17/32 in price to
yield 2.736 percent, down from 2.806 percent on Wednesday. The
yields have dropped from a seven-year high of 3.261 percent on
Oct. 9.
    The Treasury Department sold $32 billion in seven-year notes
           to strong demand, the final sale of $113 billion in
coupon-bearing supply this week.
    Indirect bidders, which include fund managers and central
banks, took 67 percent of the sale, the most since January.
    The government sold $41 billion of five-year debt on
Wednesday to tepid demand with the weakest bid-to-cover ratio, a
gauge of overall auction hunger, in about 9-1/2 years.
    Demand for the five-year notes was likely hurt by holidays
in many major markets on Wednesday.
    The Treasury's $40 billion two-year note auction on Monday
was also met with soft demand.             

 (Editing by David Gregorio and Diane Craft)
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