October 18, 2018 / 7:06 PM / a month ago

TREASURIES-U.S. yields fall as stock losses offset rate-hike worries

    * FOMC Sept minutes hint at further U.S. rate increases
    * Draghi's warning, Mnuchin pullout from summit weigh 
    * U.S. Treasury sells $5 bln 30-year TIPS to soft demand 
    * U.S. to sell $108 bln in fixed-rate debt next week

 (Updates to late afternoon market action)
    By Richard Leong
    NEW YORK, Oct 18 (Reuters) - U.S. Treasury yields slipped on
Thursday as safe-haven demand fueled by more losses on Wall
Street mitigated selling tied to worries about further interest
rate increases from the Federal Reserve.
    Jitters about more Fed rate hikes propelled the 10-year
yield to a one-week high and spurred selling in short-term rate
futures, raising borrowing costs in money markets.
    "While there were no surprises, this was a reaffirmation of
the hawkish rhetoric from Fed officials we have been hearing 
the past several weeks," said Subadra Rajappa, head of U.S.
rates strategy at SG Corporate & Investment Banking in New York.
    On Wednesday, the Fed released the minutes from its Sept.
25-26 policy meeting, when central bank officials agreed to
increase borrowing costs by a quarter point to 2.00-2.25
percent. 
    The minutes suggested they assessed the pace of economic
growth might be strong enough to raise rates more than what some
traders had thought.
    An initial rise in Treasury yields on Thursday faded as more
than 1 percent drops in major U.S. stock indexes accelerated on
rate-hike worries and disappointing earnings from several
industrial companies.
    Rising borrowing costs have raised concerns about their
effect on corporate profits and household finances. Key rates on
short-term loans have reached their highest levels in a decade.
    A warning from European Central Bank President Mario Draghi
about undermining the European Union's budget rules, and U.S.
Treasury Secretary Steven Mnuchin's withdrawal from an
investment summit in Saudi Arabia next week, also weighed on
investor sentiment toward holding risky assets, analysts said.

    Fed policy-makers' view was supported by data on Thursday
that showed the number of Americans on jobless rolls fell to
levels last seen in 1973, suggesting a further tightening in the
labor market.
    The benchmark 10-year Treasury yield was 3.173
percent, 0.6 basis point lower than late Wednesday. It reached a
one-week peak of 3.179 percent earlier Thursday, which was below
a 7-1/2 year peak of 3.261 percent reached last week.
    The Dow and S&P 500 were down 1.22 percent and
1.32 percent, respectively. 
    The 30-year yield was the exception among
maturities. It was 3.357 percent, up about 1 basis from late
Wednesday following weak demand at a $5 billion auction of
30-year Treasury Inflation Protected Securities (TIPS).

    Next week, the Treasury Department will sell a combined $108
billion in two-year, five-year and seven-year fixed-rate
government debt.
October 18 Thursday 2:54PM EDT/ 1854 GMT
                               Price                   
 US T BONDS DEC8               138-4/32     -0-1/32    
 10YR TNotes DEC8              118-36/256   0-24/256   
                               Price        Current    Net
                                            Yield %    Change
                                                       (bps)
 Three-month bills             2.265        2.3095     0.000
 Six-month bills               2.4025       2.4657     0.000
 Two-year note                 99-196/256   2.8741     -0.008
 Three-year note               99-196/256   2.9574     -0.014
 Five-year note                99-82/256    3.0237     -0.017
 Seven-year note               99-76/256    3.1131     -0.013
 10-year note                  97-124/256   3.1748     -0.004
 30-year bond                  93-72/256    3.3582     0.012
                                                       
   DOLLAR SWAP SPREADS                                 
                               Last (bps)   Net        
                                            Change     
                                            (bps)      
 U.S. 2-year dollar swap        22.25         2.25     
 spread                                                
 U.S. 3-year dollar swap        19.75         2.00     
 spread                                                
 U.S. 5-year dollar swap        15.00         2.00     
 spread                                                
 U.S. 10-year dollar swap        6.75         1.00     
 spread                                                
 U.S. 30-year dollar swap       -8.75        -0.25     
 spread                                                
 
    
 (Reporting by Richard Leong; Editing by Dan Grebler and Nick
Zieminski)
  
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