January 25, 2018 / 3:57 PM / 3 months ago

TREASURIES-Yields for most maturities rise, track euro zone bonds

    * ECB's Draghi says euro zone inflation to rise in medium
term
    * German bond yields climb, Treasuries follow
    * Treasury to auction 7-year notes

 (Adds comment, U.S. data, byline, table; updates prices in
text)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Jan 25 (Reuters) - U.S. Treasury debt yields for
most maturities rose from earlier lows on Thursday in line with
gains in those of euro zone bonds after European Central Bank
President Mario Draghi cited the region's "solid and broad"
growth and said inflation was likely to rise in the medium term.
    The yield on 10-year German government bonds, the benchmark
for the bloc, hit a six-month high at 0.579 percent following
Draghi's remarks.
    In a press briefing after the ECB kept interest rates
unchanged, Draghi said underlying inflation in the euro zone is
expected to rise gradually over the medium term supported by the
bank's monetary policy measures as well the economy's continued
expansion.
    "We're purely trading off Europe," said Tom di Galoma,
managing director at Seaport Global in New York. "European
government bonds had a big reversal here after Draghi's comments
that were a bit hawkish." 
    In mid-morning trading, benchmark U.S. 10-year note yields
 rose to 2.659 percent, after earlier falls, and up
from Wednesday's 2.654 percent.
    U.S. 30-year bond yields, however, were lower on the day, at
2.919 percent, down from 2.937 percent late on
Wednesday. The yield on this maturity touched a 3-1/2-month peak
in the previous session.
    U.S. 2-year yields, meanwhile, were up at 2.096 percent
, from Wednesday's 2.084 percent.
    Thursday's U.S. economic data was mixed, with U.S. jobless
claims rising less than expected to a seasonally-adjusted
233,000, for the week ended Jan. 20. U.S. new home sales, on the
other hand, dropped 9.3 percent in December, their largest fall
in nearly 1-1/2 years.
    Both reports though had little immediate impact on
Treasuries, as the data, particularly new home sales, have done
little to change expectations that the Federal Reserve will
raise rates in March.
    Also on Thursday, the U.S. Treasury will auction $28 bln in
7-year notes. 
    Aaron Kohli, rates strategist at BMO Capital Markets in New
York, expects the seven-year rate to come slightly higher than
the expected level at the bid deadline, suggesting a little more
tepid demand than usual for this type of maturity.
    "Seasonality of foreign buying has not been a big boost for
January auctions," Kohli said.
    He noted that of the past five January auctions, foreign
buying has averaged 16.6 percent, notably less than the
historical average since 2009 of 20.4 percent. That said, Kohli
pointed out that Japanese flows recently have been positive,
with yield spreads between U.S. and foreign debt generally wide,
suggesting there could be demand after all.
    
      January 25 Thursday 10:41AM New York / 1541 GMT
                               Price                  
 US T BONDS MAR8               148-23/32    0-8/32    
 10YR TNotes MAR8              122-28/256   -0-24/25  
                                            6         
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.4025       1.427     -0.013
 Six-month bills               1.6          1.6354    0.002
 Two-year note                 99-208/256   2.0962    0.012
 Three-year note               99-98/256    2.2158    0.011
 Five-year note                99-160/256   2.4552    0.013
 Seven-year note               97-216/256   2.5919    0.013
 10-year note                  96-124/256   2.6596    0.006
 30-year bond                  96-164/256   2.9194    -0.018
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        18.75         1.00    
 spread                                               
 U.S. 3-year dollar swap        19.50         1.00    
 spread                                               
 U.S. 5-year dollar swap         7.50         0.50    
 spread                                               
 U.S. 10-year dollar swap        3.00         0.50    
 spread                                               
 U.S. 30-year dollar swap      -13.25         1.25    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Frances
Kerry and Susan Thomas)
  
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