May 18, 2018 / 7:14 PM / 2 months ago

TREASURIES-U.S. 10-year yield falls from near 7-year peak as buying emerges

    * Traders see 3.25 percent as next test for 10-year yield
    * U.S. to sell $99 bln coupon issues, $16 bln floating-rate
notes

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, May 18 (Reuters) - U.S. 10-year Treasury yields
declined on Friday from a near seven-year high as buyers emerged
following a bond market sell-off earlier this week spurred by
worries about growing inflation and government borrowing.
    Some technical indicators suggested the Treasuries market is
the most oversold since December.
    The multiyear high yields inspired some fund managers to add
longer-dated Treasuries this week.
    "We got more aggressive this week," Jerry Paul, senior vice
president of fixed income at ICON Advisers in Denver, said of
his purchases of 10-year notes. 
    Many market players, including Paul, expect Treasury prices
would resume their fall, pushing 10-year yields toward 3.25
percent, which was last seen in May 2011.
    "It's a grind higher in yields," said Larry Milstein, head
of government and agency trading at R.W. Pressprich & Co in New
York. "I think the data are still pretty good. They make people
think the economy is doing well."
    To be sure, if Wall Street unravels as investors view
Treasuries as a compelling alternative to stocks, or a resurgent
dollar hurts oil and other commodity prices, that could rekindle
a bid for U.S. government bonds, analysts said.
    If so, the 10-year yield could fall back below 3 percent,
they said.
    The yield on benchmark 10-year Treasury notes
was down 4 basis points at 3.071 percent after touching 3.128
percent in overseas trading, the highest level since July 2011,
Reuters data showed.
    On the week, the 10-year yield was on track to increase
about 10 basis points, its biggest weekly gain in a month.
    "People are digesting the market move," said Andrew Richman,
director of fixed income at SunTrust Advisory Services in
Jupiter, Florida. "I think we have another leg up (in yields)." 
    The 2-year Treasury yield was 2 basis points
lower at 2.553 percent, pulling back from a nearly decade peak
of 2.598 percent reached on Thursday.
    The 2-year yield was on course to rise for six straight
weeks, which would be the longest such streak since 10
consecutive weeks of increases in the fourth quarter of 2017.
    The 30-year bond yield touched 3.264 percent
earlier Friday, the highest since October 2014. It was on track
for its largest weekly rise since early February.
    Demand for Treasuries will be tested next week as the
Treasury Department is scheduled to sell $99 billion in
fixed-rate coupon issues and $16 billion in 2-year floating-rate
notes (FRN).
  Friday, May 18 at 1500 EDT (1900 GMT):
                               Price                   
 US T BONDS JUN8               141-5/32     0-23/32    
 10YR TNotes JUN8              118-216/256  0-84/256   
                               Price        Current    Net
                                            Yield      Change
                                            (pct)      (bps)
 Three-month bills             1.865        1.8995     -0.007
 Six-month bills               2.0375       2.0868     0.000
 Two-year note                 99-172/256   2.5488     -0.024
 Three-year note               99-188/256   2.7182     -0.030
 Five-year note                99-88/256    2.8932     -0.039
 Seven-year note               99-24/256    3.0205     -0.043
 10-year note                  98-88/256    3.0688     -0.040
 30-year bond                  98-100/256   3.209      -0.037
                                                       
   DOLLAR SWAP SPREADS                                 
                               Last (bps)   Net        
                                            Change     
                                            (bps)      
 U.S. 2-year dollar swap        24.00        -0.50     
 spread                                                
 U.S. 3-year dollar swap        18.25         0.00     
 spread                                                
 U.S. 5-year dollar swap         9.50        -0.25     
 spread                                                
 U.S. 10-year dollar swap        3.00         0.00     
 spread                                                
 U.S. 30-year dollar swap       -9.00        -0.25     
 spread                                                
 


    
 (Reporting by Richard Leong; editing by Nick Zieminski and
Jonathan Oatis)
  
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