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TREASURIES-U.S. yields rise as Yellen repeats view on slow rate hikes
September 26, 2017 / 7:41 PM / 3 months ago

TREASURIES-U.S. yields rise as Yellen repeats view on slow rate hikes

    * Fed Yellen sees gradual U.S. rate hikes despite low
inflation
    * U.S. 2-year note sold at highest yield in nearly 9 years
    * Trump offers hints on tax plan, raises borrowing concerns

 (New throughout, updates yields, prices, market activity and
comments)
    By Richard Leong
    NEW YORK, Sept 26 (Reuters) - U.S. Treasury yields rose on
Tuesday as Federal Reserve Chair Janet Yellen stuck to the view
that the central bank remains on track for gradual interest rate
increases even as inflation remains below its 2 percent goal.
    The notion of higher rates caused investors at the two-year
Treasury note auction to demand the highest yields in nearly
nine years, kicking off this week's $88 billion short- and
medium-dated government debt supply on a soft note.
    The rise in U.S. yields was stoked further when U.S.
President Donald Trump said he and lawmakers were working to
pass a big tax cut for the middle class. Traders had no details,
but speculated the plan might raise the federal deficit and
increase government borrowing.
    Yellen "repeated that inflation being low as transitory and
the Fed is on a gradual pace of rate hikes," said Brian
Daingerfield, macro strategist at NatWest Markets in Stamford,
Connecticut. 
    Last Wednesday, the policy making Federal Open Market
Committee left the door open for another rate increase in
December and said it will begin to reduce its $4.5 trillion
balance sheet in October.
    Despite "many uncertainties" around how inflation is
behaving, it nevertheless "would be imprudent to keep monetary
policy on hold until inflation is back to 2 percent," Yellen
said in a speech at the National Association for Business
Economics' annual conference in Cleveland.
    The yield on benchmark 10-year Treasury notes
was up almost 2 basis points at 2.239 percent after recording a
4 basis-point fall on Monday, which was the biggest in more than
two weeks.
    The two-year yield which rises with traders'
expectations of higher short-term rates, touched 1.456 percent,
the highest since October 2008.
    The Treasury Department sold $26 billion of two-year notes
at a yield of 1.462 percent, the highest in nearly nine years.

    Bond yields declined on Monday on safe-haven demand due to
tensions between North Korea and the United States and surging
support for the far right in Sunday's German election.
    Overall yields have held in a narrow trading range since 
falling near 2 percent in earlier September. 
    "In the big picture, nothing has changed," said Bill Merz,
head of fixed-income research at U.S. Bank Wealth Management in
Minneapolis.
    With global economic growth improving and major central
banks still providing ample liquidity, "we are comfortable with
taking risk," Merz said. "We have an underweight in fixed income
and an overweight in stocks."
  September 26 Tuesday 3:33PM New York / 1933 GMT
                               Price                  
 US T BONDS DEC7               154-18/32    -0-11/32  
 10YR TNotes DEC7              125-236/256  -0-36/25  
                                            6         
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.05         1.0674    0.043
 Six-month bills               1.17         1.1933    0.002
 Two-year note                 99-162/256   1.4439    0.017
 Three-year note               99-108/256   1.5751    0.016
 Five-year note                98-230/256   1.86      0.024
 Seven-year note               98-172/256   2.0818    0.022
 10-year note                  100-24/256   2.2392    0.019
 30-year bond                  99-104/256   2.7793    0.020
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        26.75         0.25    
 spread                                               
 U.S. 3-year dollar swap        23.00         0.50    
 spread                                               
 U.S. 5-year dollar swap         8.00        -0.50    
 spread                                               
 U.S. 10-year dollar swap       -4.00        -0.25    
 spread                                               
 U.S. 30-year dollar swap      -32.50        -0.50    
 spread                                               
 
 (Reporting by Richard Leong; Editing by Susan Thomas and David
Gregorio)
  
 

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