May 7, 2018 / 8:10 PM / 15 days ago

TREASURIES-Yields flat ahead of auctions, CPI, as crude hits 4-year high

 (Updates news, analyst quotes, yields)
    By Kate Duguid
    NEW YORK, May 7 (Reuters) - Trading was light and Treasury
yields were little changed on Monday ahead of this week's
auctions of $73 billion in U.S. government debt and Thursday's
release of the Consumer Price Index inflation metric, even as
U.S. oil prices reached their highest since 2014.
    Rising oil prices can pressure government bond yields by
raising headline inflation, but Monday's rally had little impact
on the Treasury market. That's likely because investors are
waiting for the breakdown of CPI data before assessing whether
U.S. inflation, which has remained stubbornly low, is in fact
making a return.
    Oil prices are excluded from the Federal Reserve's preferred
measure of inflation, the Core Personal Consumption Expenditures
index. "The Fed is likely to look past higher energy costs and
focus on the trend in less volatile underlying inflation. As
such, we do not see the rise in oil prices as automatically
leading to a faster pace of Fed tightening," wrote Erin Browne,
head of asset allocation, and Evan Brown, director of asset
allocation, both at UBS Asset Management, in a research note
published Monday. 
    Brent crude oil futures hit a session top of $76.34
a barrel, the highest since November 2014, while U.S. benchmark
West Texas Intermediate crude broke through $70 for the
first time since 2014 to reach a top of $70.84.
    "Data won't demand to be traded until CPI Thursday
morning. Traders will spend most of today and the first half of
tomorrow working on their auction strategy and determining
whether corporate supply will return in earnest this week," said
Jim Vogel, interest rate strategist at FTN Financial in Memphis,
Tennessee.
    The Treasury Department's $73 billion refunding package for
May is up from the $66 billion it offered in February, with most
of the increase coming from short-end maturities. The Treasury
will sell $31 billion in three-year notes, $25 billion in
10-year notes, and $17 billion in 30-year bonds.
    The supply of debt has been increased to offset the impact
of the Fed's reduction in its bond buying. The new debt supply
will also be used to fund the $1.5 trillion the Republican
government's tax cut bill will add to the federal deficit. 
    Yields on benchmark 10-year U.S. Treasury notes
were up slightly on Monday - by 0.8 basis point at 2.952 percent
- from their last close. Yields on 30-year bonds
were up just over 1 basis point at 3.125 percent from their last
close. The two-year note was last at 2.497 percent,
down modestly from Friday's close at 2.501 percent. 
    
    May 7 Monday 4:02PM New York / 2002 GMT
                               Price                  
 US T BONDS JUN8               143-16/32    -0-5/32   
 10YR TNotes JUN8              119-168/256  -0-12/25  
                                            6         
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.8025       1.8354    -0.001
 Six-month bills               1.99         2.0376    0.008
 Two-year note                 99-194/256   2.5011    0.000
 Three-year note               99-70/256    2.6334    0.003
 Five-year note                99-210/256   2.7888    0.009
 Seven-year note               99-212/256   2.9023    0.007
 10-year note                  98-72/256    2.9534    0.009
 30-year bond                  97-152/256   3.1246    0.011
                                                      
   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        22.00         0.50    
 spread                                               
 U.S. 5-year dollar swap        13.00         0.25    
 spread                                               
 U.S. 10-year dollar swap        3.75         0.50    
 spread                                               
 U.S. 30-year dollar swap      -11.00         0.50    
 spread                                               
 
 (Reporting by Kate Duguid; Editing by Dan Grebler and James
Dalgleish)
  
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