July 10, 2018 / 8:44 PM / 5 months ago

TREASURIES-Soft demand for 3-year auction presses yield curve flatter

    * 3-year note auction met with soft demand
    * U.S. yield curve flattest since 2007

 (Adds auction news and quotes, updates yield levels)
    By James Thorne
    NEW YORK, July 10 (Reuters) - Yields on shorter-dated
Treasuries hit session highs following a weak auction of 3-year
notes that left the yield curve at its flattest in over a
decade.
    The auction for $33 billion in 3-year notes in the afternoon
had the lowest bid-to-cover ratio since April 2009, and primary
dealers took more than half of the 3-year supply.
    "Threes do look kind of rich on the curve, so it makes sense
that we saw a little bit of a tail following a concession going
into the auction," said Subadra Rajappa, head of U.S. rates
strategy at Societe Generale in New York.
    The yield curve between 5-year to 30-year Treasuries fell
below 20 basis points, the tightest spread since 2007.
    An auction of $22 billion in 10-year notes is scheduled for
Wednesday and $14 billion in 30-year bonds will be offered on
Thursday.
    The relatively soft demand for 3-year notes "doesn’t
particularly bode well" for the longer-dated Treasuries
auctions, said Thomas Simons, money market economist at
Jefferies & Co in New York. 
    Yields on 3-year notes rose to 2.686 percent
after the auction.
    Benchmark U.S 10-year notes yielded 2.871
percent at 2:56 p.m. EST (1856 GMT), up from 2.860 percent late
Monday.
    Analysts said they would be watching closely the release of
core CPI inflation data on Thursday. 
    Economists polled by Reuters expect year-over-year core
inflation to be 2.3 percent for June, compared with 2.2 percent
in May. Lower-than-expected wage growth from last week's U.S.
jobs report tempered expectations for inflation.
    
  July 10 Tuesday 2:56PM New York / 1856 GMT
                               Price                  
 US T BONDS SEP8               145-1/32     -3/32     
 10YR TNotes SEP8              120-8/256    -3/32     
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.94         1.9767    -0.007
 Six-month bills               2.0975       2.1494    -0.006
 Two-year note                 99-212/256   2.5898    0.029
 Three-year note               99-212/256   2.686     0.025
 Five-year note                99-84/256    2.7705    0.020
 Seven-year note               99-112/256   2.8394    0.012
 10-year note                  100-8/256    2.8711    0.011
 30-year bond                  103-20/256   2.9687    0.003
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       27.90        -1.70     
 30-year vs 5-year yield       19.70        -1.70     
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        24.00        -1.00    
 spread                                               
 U.S. 3-year dollar swap        20.75        -0.25    
 spread                                               
 U.S. 5-year dollar swap        14.25        -0.50    
 spread                                               
 U.S. 10-year dollar swap        7.50        -0.25    
 spread                                               
 U.S. 30-year dollar swap       -3.00         0.50    
 spread                                               
 

    

    
 (Reporting by James Thorne
Editing by Chris Reese)
  
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