September 25, 2018 / 2:26 PM / 3 months ago

TREASURIES-U.S. bond yields rise before supply, Fed

    * U.S. to sell $17 bln in 2-year FRN, $38 bln 5-year notes
    * Fed widely seen raising interest rates at policy meeting 
    * U.S. 5-year yield touches highest level since June 2009
    * U.S. 10-year, 30-year yields hit highest since May

    By Richard Leong
    NEW YORK, Sept 25 (Reuters) - U.S. Treasury yields climbed
on Tuesday, with the 10-year yield hitting a four-month peak in
advance of government debt supply and on bets about Federal
Reserve interest rate increases in the coming months.
    The U.S. Treasury Department will sell $38 billion in
five-year debt at 1 p.m. EDT.  (1700 GMT) It will auction $17
billion in two-year floating-rate notes and $40 billion in
one-month bills at 11:30 a.m. (1530 GMT)
    The government has ramped up borrowing since February as the
deficit has grown following the massive tax cut enacted last
December and a federal spending deal inked in February.
    Traders and analysts widely expect the U.S. central bank to
lift the target range on key overnight borrowing costs by a
quarter point at a two-day policy meeting that will begin
Tuesday.
    Rates futures implied traders priced in an 80 percent chance
the Fed would raise rates again in December, CME
Group's FedWatch program showed.
    Fed officials have signaled in recent days that the U.S.
economic expansion remains intact with inflation heading toward
their 2 percent goal, which would allow for more rate hikes in
coming months.
    "We're seeing risks skewed hawkishly," said Blake Gwinn,
U.S. rates strategist at NatWest Markets in Stamford,
Connecticut. "People have been leaning short for the past
month."
    Expectations of rate hikes has prompted many investors to
sell Treasuries, sending short-dated yields to their highest in
a decade. Still, Treasuries have drawn some support from worries
that global trade tensions might hurt the U.S. economy.
 
    At 10:04 a.m. (1404 GMT), the benchmark 10-year Treasury
yield was 3.100 percent, up 2.2 basis points from
late on Monday. Its session high of 3.113 percent was its
highest since May, Reuters data showed.
    The 30-year yield reached 3.249 percent, its
highest in four months.
    Five-year yield touched 2.990 percent, which was
last seen in June 2009.
    In "when-issued" activity, traders expected the latest
five-year note supply to sell at a yield of 2.983 percent
, which would be the highest yield at an auction
of this maturity in 10 years, according to Tradeweb.
    "The auction will go okay given the move (in yield) we have
had," Gwinn said.
September 25 Tuesday 10:05AM New York / 1405 GMT
                               Price                  
 US T BONDS DEC8               139-24/32    -16/32    
 10YR TNotes DEC8              118-112/256  -6/32     
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2.175        2.2175    0.000
 Six-month bills               2.3175       2.3776    0.008
 Two-year note                 99-214/256   2.8351    0.008
 Three-year note               99-138/256   2.9129    0.017
 Five-year note                98-244/256   2.9797    0.021
 Seven-year note               98-20/256    3.0597    0.023
 10-year note                  98-24/256    3.1001    0.022
 30-year bond                  95-124/256   3.2368    0.027
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       26.30        -0.50     
 30-year vs 5-year yield       25.50        -0.10     
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        16.75         0.25    
 spread                                               
 U.S. 3-year dollar swap        16.25         1.25    
 spread                                               
 U.S. 5-year dollar swap        12.75         1.00    
 spread                                               
 U.S. 10-year dollar swap        5.75         0.50    
 spread                                               
 U.S. 30-year dollar swap       -6.75         0.50    
 spread                                               
 
 (Reporting by Richard Leong; Editing by David Gregorio)
  
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