July 10, 2018 / 8:44 PM / 9 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
    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
    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
    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
 US T BONDS SEP8               145-1/32     -3/32     
 10YR TNotes SEP8              120-8/256    -3/32     
                               Price        Current   Net
                                            Yield %   Change
 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       
 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       
 U.S. 2-year dollar swap        24.00        -1.00    
 U.S. 3-year dollar swap        20.75        -0.25    
 U.S. 5-year dollar swap        14.25        -0.50    
 U.S. 10-year dollar swap        7.50        -0.25    
 U.S. 30-year dollar swap       -3.00         0.50    


 (Reporting by James Thorne
Editing by Chris Reese)
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