May 17, 2018 / 7:21 PM / 4 months ago

TREASURIES-U.S. 10-year yield hits 7-year high, soggy TIPS sale

    * Investors, speculators uncertain about market's direction 
    
U.S. $11 bln 10-year TIPS auction fails to inspire demand 
    * U.S. to sell $99 bln coupon issues, $16 bln FRN
    * U.S. jobless claims rise, Philly Fed data improve

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, May 17 (Reuters) - U.S. 10-year Treasury yields
rose to a near seven-year peak on Thursday, extending this
week's bond market selloff, as traders and investors have not
reached a consensus on whether it was time to buy or if the
market was vulnerable to more selling.
    Technical indicators suggested the Treasuries market is the
most oversold since three weeks ago when the 10-year yield rose
above 3 percent for the first time since January 2014.
    These chart signals, however, have not lured bargain-minded
investors to jump back into bonds, which would send yields
lower. 
    "The market is trying to figure where the bottom is. At this
point, it is not clear," said Mary Ann Hurley, vice president of
fixed income with D.A. Davidson in Seattle.
    The U.S. Treasury Department's $11 billion reopening of a
prior issue of 10-year Treasury Inflation Protection Securities
(TIPS) drew mediocre bidding.
    Demand for new Treasury supply will be tested again next
week with $99 billion in fixed-rate coupon issues and $16
billion in two-year floating-rate notes (FRN).

    Hurley and other traders reckoned bets on rising inflation
and federal borrowing will likely push the 10-year yield to 3.25
percent.
    Some analysts laid the blame more on technical factors
behind this week's market selloff. 
    "It's more a technical move than one driven by
fundamentals," said Bruno Braizinha, interest rate strategist at
SG Corporate & Investment Banking in New York.
    On balance, recent U.S. economic readings, including
payrolls and consumer price data in April, have fallen short of
market expectations, Braizinha noted.
    New applications for U.S. jobless benefits rose more than
forecast last week after hitting their lowest level since 1969
in late April. On the other hand, Mid-Atlantic business activity
rose to its strongest in a year, based on an index from the
Philadelphia Federal Reserve.
    Benchmark 10-year Treasury notes yielded 3.109
percent, up over 1 basis point from late on Wednesday. The yield
touched 3.122 percent earlier Thursday, which was the highest
since July 2011, according to Reuters data.
    Since the 10-year yield on Tuesday broke above 3.05 percent,
seen as a critical support level, there are no signs yet that
asset managers are bailing from their hefty bullish bets on
longer-dated Treasuries or that speculators are rushing out of
their heavy bearish bond positions, analysts said.
    The Treasuries market's risks are "symmetric," meaning
yields could move in either direction, Braizinha said. If the
10-year yield hits 3.25 percent, "it's a definite buy." 
May 17 Thursday 3:00PM EDT/ 1900 GMT
                               Price                   
 US T BONDS JUN8               140-15/32    -0-15/32   
 10YR TNotes JUN8              118-128/256  -0-12/256  
                               Price        Current    Net
                                            Yield %    Change
                                                       (bps)
 Three-month bills             1.8725       1.9074     0.002
 Six-month bills               2.0375       2.0872     0.002
 Two-year note                 99-160/256   2.5729     -0.016
 Three-year note               99-166/256   2.7482     -0.011
 Five-year note                99-42/256    2.9324     -0.002
 Seven-year note               98-212/256   3.0633     0.005
 10-year note                  98           3.1094     0.014
 30-year bond                  97-180/256   3.2454     0.030
                                                       
   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        18.25         1.00     
 spread                                                
 U.S. 5-year dollar swap         9.75         0.50     
 spread                                                
 U.S. 10-year dollar swap        3.00        -0.25     
 spread                                                
 U.S. 30-year dollar swap       -8.75        -1.25     
 spread                                                
 
    
 (Reporting by Richard Leong; Editing by Bernadette Baum and
James Dalgleish)
  
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