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TREASURIES-Yields fall as Treasury holds auction sizes steady
November 1, 2017 / 1:42 PM / 21 days ago

TREASURIES-Yields fall as Treasury holds auction sizes steady

    * Debt ceiling seen as complicating ability to raise funds
    * US five-year, 30-year yield curve flattest since 2007

    By Karen Brettell
    NEW YORK, Nov 1 (Reuters) - U.S. Treasury yields fell on
Wednesday after the Treasury Department said it would keep
auction sizes steady in the coming months, despite the Federal
Reserve’s plan to reduce its bond holdings, but will announce
changes in February.
    "The magnitude and allocation of increases in auction sizes
will depend in part on projections for the fiscal outlook,"
Monique Rollins, Treasury's acting assistant secretary for
financial markets, said in a statement.
    Rollins said the Treasury anticipated "gradual adjustments"
to its nominal coupon and 2-year floating rate note issues.
            
    The Treasury will need to increase auction sizes due to the
Fed’s declining participation in the market and as the U.S.
deficit widens.
    The suspension of the country’s debt limit is due to expire
on Dec. 8, however, which is seen as complicating the
government’s ability to raise funds.
    “There is so much uncertainty around December 8 and whether
they will get a debt ceiling hike," said Aaron Kohli, an
interest rate strategist at BMO Capital Markets in New York.
    "To me this is kind of an admission that they don’t see an
easy one and that they don’t know what time they’re going to
eventually hit the drop dead date,” Kohli said.
    Benchmark 10-year note yields             fell to 2.38
percent, from 2.40 percent before the announcement.
    The yield curve between five-year notes and 30-year bonds
               flattened to 83 basis points, the lowest level
since late 2007.
    Bond yields             have dropped since Bloomberg on
Monday quoted Treasury Secretary Steven Mnuchin saying the
government does not see a lot of demand for ultra-long bonds,
reducing expectations the government will introduce a new
ultra-long maturity.
    The Treasury Borrowing Advisory Committee (TBAC), which
advises the government on its funding strategy, said on
Wednesday that the two-year, three-year and five-year part of
the yield curve would be an attractive area to increase
issuance.  
    Yields increased earlier on Tuesday after the ADP National
Employment Report showed that private employers hired 235,000
workers in October, the most in seven months.              
    Investors are next focused on the government’s jobs report
for October due on Friday.
    The Fed is expected to keep interest rates unchanged when it
concludes its two-day policy meeting on Wednesday.             
    Republicans in the U.S. House of Representatives are due to
release long-awaited tax legislation on Thursday, after delaying
its introduction by one day.             
    U.S. President Donald Trump is expected to announce his
choice for new Fed chair on Thursday, with news reports
indicating that Federal Reserve Governor Jerome Powell is likely
to get the nomination.             

 (Editing by Bernadette Baum)
  
 
 )

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