October 3, 2017 / 6:54 PM / a year ago

TREASURIES-U.S. yields dip as investors remain cautious

    * Abu Dhabi $10 bln sovereign bond issue draws strong demand
    * Traders sell long-end Treasuries to make way for Abu Dhabi
    * Markets starting to focus Fed chair announcement

 (Adds new comment, updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Oct 3 (Reuters) - U.S. Treasury debt yields fell
on Tuesday in volatile trading as the market remained cautious
two days after a mass shooting in Las Vegas, with investors also
continuing to weigh the prospects of another interest rate hike
this year.
    The Las Vegas tragedy has remained on investors' radars,
said Jim Vogel, interest rates strategist, at FTN Financial in
Memphis, Tennessee. 
    The Sunday night shooting spree from a 32nd-floor window of
the Mandalay Bay hotel, on the Las Vegas Strip, killed at least
59 people before the gunman turned a weapon on himself. More
than 500 people were injured, some trampled, in the deadliest
mass shooting in modern U.S. history.
    "That still represents a pall over the markets. People are
not doing bold strategies right now, just small ones," Vogel
    U.S. 30-year bond yields, which move inversely to prices,
were higher though, with investors absorbing a mammoth sovereign
bond deal from Abu Dhabi valued at $10 billion, analysts said.
    Abu Dhabi sold its first ever 30-year sovereign bond on
Tuesday as part of a $10 billion triple-tranche debt issue that
drew heavy demand. Its issue of five-, 10- and 30-year
maturities had attracted more than $30 billion in demand.

    Investors sold long-end Treasuries as a hedge to make way
for the new bond issue, analysts said.
    In late trading, the benchmark 10-year U.S. Treasury note
yield was 2.335 percent, down slightly from 2.337
percent late on Monday, while the 30-year yield was
up at 2.876 percent, compared with Monday's 2.865 percent.
    U.S. two-year notes were at 1.475 percent, down
from 1.487 percent on Monday.
    Tom di Galoma, managing director at Seaport Global Holdings
in New York said the bond market was starting to turn its
attention to the deliberations at the White House over who might
lead the Federal Reserve starting next year.
    Aside from Fed Chair Janet Yellen, whose current term
expires in February, among those being considered are ex-Fed
Governor Kevin Warsh and current Fed Governor Jerome Powell.
Both Warsh and Powell were interviewed at the White House last
    "Any Fed chair announcement that comes over the next two to
three weeks will be viewed as a hawkish announcement just
because Yellen is such a dove," said di Galoma. 
    "And so I think the market is starting to support the theme
that whoever becomes Fed chair will be raising rates faster than
Yellen would be," he added.
    Focus has also turned to this week's U.S. non-farm payrolls
report, which could shed more light on the chances of a December
rate increase.

    Tuesday, Oct. 3 at 1427 EDT (1827 GMT):
 US T BONDS DEC7               152-20/32    -0-2/32   
 10YR TNotes DEC7              125-84/256   0-20/256  
                               Price        Current   Net
                                            Yield     Change
                                            (pct)     (bps)
 Three-month bills             1.045        1.0624    0.018
 Six-month bills               1.1875       1.2113    -0.005
 Two-year note                 99-206/256   1.475     -0.012
 Three-year note               99-80/256    1.6147    -0.013
 Five-year note                99-198/256   1.9228    -0.011
 Seven-year note               99-196/256   2.1613    -0.010
 10-year note                  99-68/256    2.3336    -0.003
 30-year bond                  97-128/256   2.8752    0.010
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        26.25         0.75    
 U.S. 3-year dollar swap        23.00         0.50    
 U.S. 5-year dollar swap         7.75         0.00    
 U.S. 10-year dollar swap       -4.75        -0.25    
 U.S. 30-year dollar swap      -32.75        -0.50    
 (Reporting by Gertrude Chavez-Dreyfuss; editing by Diane Craft)
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