October 10, 2018 / 2:58 PM / 7 months ago

TREASURIES-Yields rise as U.S. data supports rate outlook, ahead of auction

    * U.S. PPI rises in September, core gains as well
    * Focus on auctions

 (Recasts, adds comment, table, byline)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Oct 10 (Reuters) - U.S. Treasury yields rose on
Wednesday, continuing a trend that has been in place the last
few weeks amid solid U.S. economic data that reinforced
expectations of multiple rate hikes over the next 12 months.
    Investors also sold Treasuries ahead of two key auctions
later in the session -- $36 billion in U.S. 3-year notes, and
$23 billion in re-opened 10-year notes. Market participants tend
to sell Treasuries before an auction to push the yield higher so
they can buy them at a lower price. 
    The auction aside, Wednesday's data on U.S. producer prices,
which rose in September after declining the previous month,
added to the hawkish outlook on interest rates. The report 
suggested that inflationary pressures were building.
    Data showed U.S. producer prices gained 0.2 percent in
September, reversing an unexpected drop in August and in line
with expectations. More importantly, a key measure of underlying
producer price pressures that excludes food, energy and trade
services grew 0.4 percent last month, the largest increase since
    In mid-morning trading, the U.S. 10-year yields were last at
3.217 percent, up from 3.208 percent late on
    In one of the swiftest market moves, the yield on the
10-year Treasury bond rallied from 3.07 percent to 3.22 percent
last week.
    "It's unusual for the 10-year to move the way it did last
week," said Jerry Paul, senior vice president and fixed income
portfolio manager at ICON Advisers in Denver.
    "It's like all of a sudden everybody realized that the
economy has longer legs than they had expected. We have been in
the camp that this would continue for a while." 
    U.S. 30-year yields were also higher at 3.382 percent
, from Tuesday's 3.369 percent. 
    Ahead of a 3-year auction, yields on U.S. 3-year notes were
at 2.982 percent, little changed from Tuesday's
    Analysts at BMO Capital Market said Wednesday's 3-year
auction will almost surely be the highest yielding offering
since before the financial crisis.
    "As the note approaches 3 percent, we expect that outright
cheapness will help prompt solid demand," BMO said in a research
      October 10 Wednesday 10:30AM New York / 1430 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             2.23         2.2738    0.010
 Six-month bills               2.3875       2.4502    0.000
 Two-year note                 99-186/256   2.8935    0.005
 Three-year note               99-86/256    2.9881    0.006
 Five-year note                99-28/256    3.0695    0.013
 Seven-year note               98-244/256   3.1685    0.017
 10-year note                  97-12/256    3.2272    0.019
 30-year bond                  92-164/256   3.394     0.025
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        18.25         0.25    
 U.S. 3-year dollar swap        16.75         0.50    
 U.S. 5-year dollar swap        12.25         0.00    
 U.S. 10-year dollar swap        4.50         0.00    
 U.S. 30-year dollar swap      -10.00         0.00    
 (Reporting by Gertrude Chavez-Dreyfuss
Editing by Chizu Nomiyama)
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