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TREASURIES-Worries about N.Korea, Germany stoke demand for U.S. bonds
September 25, 2017 / 6:42 PM / in 23 days

TREASURIES-Worries about N.Korea, Germany stoke demand for U.S. bonds

    * N. Korean foreign ministers escalate geopolitical concerns
    * Fallout from German election spur safe-haven bids
    * U.S. to sell $88 bln short- to medium-dated notes
    * Fed's Dudley expects continued gradual U.S. rate increases

 (Updates market action, adds quotes)
    By Richard Leong
    NEW YORK, Sept 25 (Reuters) - U.S. Treasury yields fell on
Monday as concerns about tensions  between North Korea and the
United States and a surge in support for the far right in
Sunday's German election stoked safe-haven demand for U.S.
government bonds.
    The benchmark 10-year yield posted its biggest single-day
drop in over two weeks, holding within its recent range ahead of
this week's $88 billion in short- and medium-term debt supply
and a speech on Tuesday from Federal Reserve Chair Janet Yellen.
    On Monday, North Korean foreign minister Ri Yong Ho said
U.S. President Donald Trump declared war on North Korea and that
Pyongyang reserves the right to take countermeasures amid heated
rhetoric between Trump and North Korean leader Kim Jong Un over
the latter's nuclear weapons program.
    "It's another marker that this won't cool off," said Robert
Tipp, chief market strategist at PGIM Fixed Income in Newark,
New Jersey. 
    U.S. bond yields initially fell in step with their German
counterparts following a surprisingly weak election result for
Germany's Angela Merkel. A surge in support for the far right
stoked concerns about a more hardline stance towards the euro
zone.
    "The German election led to an euro zone bond rally," said
Eric Stein, co-director of global income group in Eaton Vance
Management in Boston.
    The benchmark 10-year Treasury yield was down 4
basis points at 2.222 percent. 
    Last Wednesday, the 10-year yield reached 2.289 percent, its
highest since Aug. 8, after the Fed signaled it may raise
interest rates at its Dec. 12-13 policy meeting.
    While geopolitical worries returned to the forefront on
Monday, traders appeared more focused on this week's bond supply
and what Yellen may hint about a possible December rate increase
than on geopolitical concerns.
    The Treasury Department will sell $26 billion of two-year
notes on Tuesday; $34 billion in five-year debt
on Wednesday and $28 billion of seven-year notes
 on Thursday.
    On Tuesday, Yellen is scheduled to speak on "Prospects for
Growth: Reassessing the Fundamentals" at 12:45 p.m. (1645 GMT). 
    Earlier on Monday, New York Fed President William Dudley
said the U.S. central bank is on track to gradually raise rates
given factors depressing inflation are "fading" and the U.S.
economy's fundamentals are sound.
    On the other hand, Chicago Fed President Charles Evans said
the Fed should wait until there are clear signs of faster wage
and price growth before hiking rates again.
September 25 Monday 2:32PM New York / 1832 GMT
                               Price                  
 US T BONDS DEC7               154-28/32    0-25/32   
 10YR TNotes DEC7              126-20/256   0-88/256  
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.0075       1.024     -0.005
 Six-month bills               1.1675       1.1905    0.006
 Two-year note                 99-170/256   1.4271    -0.016
 Three-year note               99-120/256   1.5587    -0.029
 Five-year note                99-2/256     1.8364    -0.035
 Seven-year note               98-208/256   2.0597    -0.041
 10-year note                  100-64/256   2.2216    -0.040
 30-year bond                  99-188/256   2.763     -0.033
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        26.25        -0.25    
 spread                                               
 U.S. 3-year dollar swap        22.50         0.00    
 spread                                               
 U.S. 5-year dollar swap         8.25        -0.25    
 spread                                               
 U.S. 10-year dollar swap       -3.75        -0.25    
 spread                                               
 U.S. 30-year dollar swap      -31.75        -0.50    
 spread                                               
 

    

 (Reporting by Richard Leong; Editing by Meredith Mazzilli and
Chizu Nomiyama)
  
 

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