October 25, 2018 / 6:30 PM / 10 months ago

TREASURIES-Yields edge higher as equities recover

 (Adds auction results, quotes, updates prices)
    * Stocks rally lifts yields off three-week lows
    * U.S. 10-year notes test technical resistance
    * Direct bidders reduce purchases at seven-year note auction

    By Karen Brettell
    NEW YORK, Oct 25 (Reuters) - U.S. Treasury yields rose from
three-week lows on Thursday as equities gained, though anxiety
about ongoing stock volatility was seen supporting a bid for
safe-haven U.S. government debt.
    Microsoft Corp's          strong earnings helped
Nasdaq-listed companies stage a rebound from the tech-heavy
index's worst decline since 2011 in the previous session.     
    Concerns about a slowdown in China, tensions between the
European Union and Italy regarding Italy’s spending plans and
some weak U.S. corporate earnings reports have hurt risk
sentiment this week.
    “The market’s still worried about the U.S. equity market
volatility,” said Tom di Galoma, a managing director at Seaport
Global Holdings in New York.
    Benchmark 10-year Treasury yields             dropped to
3.09 percent on Wednesday, the lowest since Oct. 3, before
rising to 3.14 percent on Thursday.
    The yields tested technical resistance at around 3.09 to 
3.13 percent, which was a seven-year high set in May, before
being breached earlier this month. The yields rose as high as
3.26 percent on Oct. 9.
    “We’ve had issues getting through this 3.13 (percent) level
and staying below it, mainly because I think it was a big
breakout level in the market,” said di Galoma.
    The Treasury Department saw weak demand from direct bidders
in a $31 billion auction of seven-year notes, the final sale of
$108 billion in coupon-bearing supply this week.
    Weak interest in the debt by direct bidders, which includes
some foreign central banks and is thought to include China’s,
has raised some concerns that China is reducing Treasury
purchases due to trade tensions between Beijing and Washington.
    “It’s extremely unusual to see that pullback in demand
across all three auctions in a given week,” said Tom Simons, a
money market economist at Jefferies in New York. “Given the
background of our trade issues with China, one might surmise
that they might be pulling back their demand for auctions.”
    Direct bidders are not disclosed, making their identities
subject to speculation. They took the lowest share of the
seven-year notes since 2011.             
    That follows similar reductions at Wednesday’s $39 billion
sale of five-year notes and Tuesday’s $38 billion auction of
two-year notes. In each case, direct bidders took the lowest
share since 2009.                          
    This week's economic focus is Friday's gross domestic
product data for the third quarter.

 (Editing by Dan Grebler)
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