June 5, 2018 / 1:41 PM / 10 months ago

TREASURIES-U.S. yields fall as concerns about Italy flare

    * Italy's new PM outlines budget-busting economic plan
    * Upcoming debt auctions, Fed meeting temper Treasuries

    By Richard Leong
    NEW YORK, June 5 (Reuters) - U.S. Treasury yields fell on
Tuesday as traders piled back into lower-risk government debt
after Italy's new prime minister vowed to enact economic
policies that could balloon the nation's already heavy debt
    Traders lightened their Italian bonds in favor of Treasuries
and German Bunds as Italian Prime Minister Giuseppe Conte's
pledge for tax cuts and more welfare spending overshadowed
encouraging business data on Italy and Spain, the euro zone's
third- and fourth-largest economies.
    "The market is just following Italian spreads as a gauge,
but it seems to be settling down here," said Dan Mulholland,
head of Treasury trading at Credit Agricole in New York.
    At 9:24 a.m. (1324 GMT), the yield on benchmark 10-year
Treasury notes was 2.917 percent, down 2 basis
points from late on Monday. It reached a one-week high of 2.946
percent the prior session due to reduced fears about political
turmoil in Italy and Spain.
    Ten-year German yield fell nearly 4 basis points
to 0.383 percent.
    On the other hand, 10-year Italian yield jumped
18 basis points to 2.736 percent after hitting a one-week low of
2.509 percent on Monday.
    Daily trading volume has fallen following the record high
level of bond futures transacted a week ago when traders rushed
out their bearish bets against Treasuries on fears that Italy's
anti-establishment parties would push the country to leave the
euro zone.
    Tuesday's buying of Treasuries was tempered ahead of the
Treasury Department's announcement of next week's government
debt auctions and the Federal Reserve's two-day policy meeting,
analysts said.
    Interest rates futures implied traders saw a 92 percent
chance the U.S. central bank would raise overnight borrowing
costs by a quarter point to 1.75-2.00 percent next Wednesday,
CME Group's FedWatch program showed.
    The Federal Open Market Committee, the Fed's policy-setting
group, last increased short-term rates in March.
June 5 Tuesday 9:20AM New York / 1320 GMT
 US T BONDS SEP8               143-20/32    12/32     
 10YR TNotes SEP8              119-176/256  6/32      
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.91         1.946     0.000
 Six-month bills               2.07         2.121     -0.005
 Two-year note                 100          2.4999    -0.008
 Three-year note               100-2/256    2.6219    -0.017
 Five-year note                99-240/256   2.7634    -0.021
 Seven-year note               100-8/256    2.87      -0.026
 10-year note                  99-168/256   2.9149    -0.022
 30-year bond                  101-48/256   3.0641    -0.019
         YIELD CURVE           Last (bps)   Net       
 10-year vs 2-year yield       41.30        -0.90     
 30-year vs 5-year yield       30.00        1.05      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        25.75         0.00    
 U.S. 3-year dollar swap        21.75         1.00    
 U.S. 5-year dollar swap        13.25         0.25    
 U.S. 10-year dollar swap        5.50        -0.25    
 U.S. 30-year dollar swap       -8.00        -0.50    

 (Reporting by Richard Leong
Editing by Susan Thomas)
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