August 7, 2018 / 7:25 PM / 6 months ago

TREASURIES-U.S. bond yields rise on supply, Wall Street gains

    * U.S. sells 3-year note supply to mediocre demand
    * Record supply put upward pressure on longer-dated yields
    * Data point to rising bets against 10-year notes
    * S&P 500 near record high on upbeat company results

 (Updates market action, adds quote, graphic)
    By Richard Leong
    NEW YORK, Aug 7 (Reuters) - U.S. Treasury yields rose on
Tuesday as investors scaled back their bond holdings on higher
Wall Street stock prices and pressure to make room for $78
billion in coupon-bearing supply from this week's quarterly
government refunding.
    The U.S. Treasury Department sold $34 billion in three-year
notes, the largest auction for the debt maturity in eight years,
to mediocre demand.
    The Treasury will sell a record amount of 10-year debt worth
$26 billion on Wednesday, and an all-time high
of $18 billion in 30-year bonds on Thursday.

    Investors also face supply from the corporate bond market
where companies raised $10.45 billion in the investment-grade
sector on Monday, according to IFR, a unit of Thomson Reuters.

    Federal debt issuance has risen since March to make up for 
a growing budget deficit due to a massive tax cut in December
and a two-year government spending deal in February.
    "The market is digesting this new supply, and it will keep
on coming," said Kevin Flanagan, senior fixed income strategist
at WisdomTree Investments in New York.
    He said it would not be surprising that some auctions fare
poorly even as overall demand for Treasuries remains solid.
    So far, data suggested fund managers have been willing to
buy the additional Treasury supply, while speculators and hedge
funds are betting longer-dated Treasuries will lose value from
the growth in issuance and a pickup in inflation.
    Investors' net shorts in longer-dated Treasuries rose to
their highest in eight weeks, but stayed close to their 52-week
average, according to a J.P. Morgan Securities survey.

    Speculators built the highest amount of net shorts ever
against 10-year Treasury futures last week, as hedge funds' net
shorts on 10-year T-notes hovered at a record peak, data from
the Commodity Futures Trading Commission released on Friday
    On late Tuesday trading, the benchmark 10-year yield
 increased nearly 4 basis points to 2.975 percent. It
fell to a two-week low of 2.925 percent on Monday on safe-haven
demand spurred by U.S.-China trade frictions.
    Reduced appetite for U.S. bonds on Tuesday stemmed from
gains on Wall Street with the S&P 500 index approaching a
record peak.
    "It's the bounce in stocks and other risky assets that
caused an uptick in yields," said Mike Lorizio, head of U.S.
Treasuries trading at Manulife Asset Management in Boston.
August 7 Tuesday 3:09PM New York / 1909 GMT
 US T BONDS SEP8               142-18/32    -22/32    
 10YR TNotes SEP8              119-120/256  -9/32     
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             2.0175       2.0561    0.003
 Six-month bills               2.18         2.2349    0.000
 Two-year note                 99-232/256   2.6738    0.025
 Three-year note               99-158/256   2.7613    0.030
 Five-year note                99-148/256   2.8414    0.037
 Seven-year note               99-176/256   2.9248    0.040
 10-year note                  99-44/256    2.973     0.035
 30-year bond                  100-20/256   3.1208    0.039
         YIELD CURVE           Last (bps)   Net       
 10-year vs 2-year yield       29.70        0.70      
 30-year vs 5-year yield       27.90        -0.45     
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        20.75        -0.25    
 U.S. 3-year dollar swap        18.25        -0.50    
 U.S. 5-year dollar swap        13.25        -1.00    
 U.S. 10-year dollar swap        6.00        -0.75    
 U.S. 30-year dollar swap       -6.25        -0.75    

 (Reporting by Richard Leong
Editing by Paul Simao and Tom Brown)
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