October 9, 2018 / 7:37 PM / 2 months ago

TREASURIES-U.S. yields fall as sell-off takes a breather

    * Markets pause sell-off, digests week ahead
    * U.S. Treasury auctions seen limiting downside in yields
    * U.S. ambassador to UN Haley resigning; little market
impact
    * Fed's Kaplan says jump in yields suggests 'conflicting'
factors

 (Adds comment, auction details, updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Oct 9 (Reuters) - U.S. long-dated Treasury yields
fell on Tuesday in choppy trading, as investors took a respite
from selling bonds that took rates to multi-year highs following
recent economic data and on interest rate prospects over the
next year and a half.
    The bond market was closed on Monday for the Columbus Day
holiday.
    Benchmark U.S. 10-year yields earlier touched a 7-1/2-year
peak, while those on 30-year bonds hit a more than four-year
high. Yields on 7-year notes rose as well, climbing to their
highest in more than eight years.
    The surge in yields, however, took a step back on Tuesday.
    "After hitting highs overnight in yields, it was basically a
straight drive for buyers across the curve, led by the long
end," said Justin Lederer, a Treasury trader at Cantor
Fitzgerald in New York.
    "It was a pretty big sell-off last week. People are coming
and looking at these yields and finding them attractive,' he
added.
    Federal Reserve Bank of Dallas President Robert Kaplan also
expressed some concern about the jump in U.S. yields, noting it
suggests "conflicting factors" and along with a proposed new
North America Agreement trade agreement has created uncertainty
among investors over future economic growth prospects.
 
    His remarks weighed slightly on yields. Kaplan, though, is
not a voting member this year.
    U.S. ambassador to the United Nations Nikki Haley's
announcement that she is resigning had little impact on
Treasuries, traders said, but only because market participants
were not quite clear about its implications.
    Haley said on Tuesday she would stay until the end of the
year and denied she was preparing to challenged President Donald
Trump in the 2020 presidential election.
    Analysts at Action Economics said the looming $74 billion in
coupon supply should limit the downside in yields. The Treasury
Department is auctioning $36 billion in U.S. 3-year notes and
$23 billion in reopened 10-year notes on Wednesday.
    On Thursday, Treasury will sell $15 billion in 30-year
bonds.
    Investors typically sell Treasuries ahead of an auction to
push the yield higher so they can buy them at a lower price in a
practice called concession.
    In afternoon trading, U.S. 10-year yields were last at 3.204
 percent, down from 3.227 percent late on Friday.
Earlier in the session, 10-year yields hit 3.261 percent, the
highest since early May 2011.
    U.S. 30-year yields were at 3.363 percent, after
earlier rising to 3.446 percent, its strongest since July 2014.
Last Friday, the 30-year yield was at 3.397 percent.
    U.S. 7-year yields also rose earlier, hitting 3.199 percent,
the highest in 8-1/2 years. It was last at 3.148 percent
.
    
      October 9 Tuesday 3:21PM New York / 1921 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2.195        2.2371    0.020
 Six-month bills               2.37         2.4311    0.015
 Two-year note                 99-188/256   2.8892    0.000
 Three-year note               99-92/256    2.9794    -0.006
 Five-year note                99-44/256    3.0557    -0.015
 Seven-year note               99-16/256    3.1507    -0.020
 10-year note                  97-56/256    3.2063    -0.021
 30-year bond                  93-32/256    3.3668    -0.030
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        18.00         0.50    
 spread                                               
 U.S. 3-year dollar swap        16.25         0.50    
 spread                                               
 U.S. 5-year dollar swap        12.25         1.00    
 spread                                               
 U.S. 10-year dollar swap        4.50         0.75    
 spread                                               
 U.S. 30-year dollar swap      -10.25         0.75    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Bernadette
Baum and Susan Thomas)
  
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