September 28, 2018 / 7:18 PM / 6 months ago

TREASURIES-U.S. Treasuries post worst month since January

    * Rising supply, yields hurt $15-trillion sector in
    * Italy's budget woes spur safe-haven bids for U.S. bonds
    * Traders shrug off mixed economic data 

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, Sept 28 (Reuters) - U.S. Treasury yields slipped
on Friday as the $15.3 trillion bond sector recorded its worst
month since January due to rising government debt supply and
sturdy economic data that have enabled the Federal Reserve to
keep raising interest rates.
    Government bonds have produced a loss of nearly 0.95 percent
through Thursday, marking the steepest monthly decline since
January, according to an index compiled by Bloomberg and
    Growing Treasury issuance in a bid to fund a widening fiscal
deficit likely reduced the appeal of buying this week's
government debt issues. The Treasury Department sold a combined
$107 billion in two-year, five-year and seven-year notes to soft
investor demand.
    The bond market as a whole has continued to lag Wall Street
where shares have been buoyed by healthy profit growth, stemming
from last year's tax cuts and decent consumer demand.
    "There's nothing to get too excited about fixed income,"
said Brian Rehling, co-head of global fixed income strategy at
Wells Fargo Investment Institute in St. Louis. "The good news is
that U.S. equities have done pretty well."
    The S&P 500 index has eked out a near 0.6 percent
gain this month amid U.S-China trade tensions.     
    Bond yields dipped on the day as investors bought
longer-dated debt to rebalance their portfolios before the end
of the month. 
    Worries about Italy's fiscal woes spurred safe-haven demand
for German Bunds and U.S. Treasuries, analysts said. 
    Italy's new government proposed a 2019 budget with a deficit
three times bigger than the previous administration's target,
setting up a clash with the European Commission. 
    This touched off a sell-off in Italian sovereign debt,
sending local 10-year yield over a quarter point
higher to 3.719 percent.
    Benchmark 10-year Treasury yields were
marginally lower at 3.056 percent. On Tuesday, they reached
3.113 percent, the highest since May, Reuters data showed.
    Their German counterpart fell to 0.474 percent,
down over 5 basis points, which was its biggest one-day fall in
almost a month.
    Bond traders brushed off Friday's economic data which came
in mixed. The latest figures signaled solid consumer spending
and sentiment, but a moderation in inflation.
    On Wednesday, the Federal Reserve signaled it remained on
its gradual rate-hike path based on its view of further economic
    Interest rates futures implied traders priced in nearly an
80 percent chance the U.S. central bank would raise key
overnight borrowing costs by a quarter point at its Dec. 18-19
meeting, CME Group's FedWatch program showed.
September 28 Friday 3:02PM New York / 1902 GMT
 US T BONDS DEC8               140-18/32    -3/32     
 10YR TNotes DEC8              118-212/256  3/32      
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             2.1575       2.1989    0.007
 Six-month bills               2.3125       2.3717    0.002
 Two-year note                 99-222/256   2.8188    -0.016
 Three-year note               99-162/256   2.8802    -0.017
 Five-year note                99-176/256   2.9427    -0.017
 Seven-year note               99-240/256   3.01      -0.014
 10-year note                  98-132/256   3.05      -0.005
 30-year bond                  96-76/256    3.1931    0.011
         YIELD CURVE           Last (bps)   Net       
 10-year vs 2-year yield       22.90        0.80      
 30-year vs 5-year yield       24.90        2.40      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        16.75         0.25    
 U.S. 3-year dollar swap        16.25        -0.25    
 U.S. 5-year dollar swap        11.50         0.25    
 U.S. 10-year dollar swap        5.50        -0.25    
 U.S. 30-year dollar swap       -7.50        -1.00    

 (Reporting by Richard Leong; Editing by Nick Zieminski)
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