January 23, 2018 / 7:54 PM / a month ago

TREASURIES-Yields slide in line with Japan government bonds, after BoJ decision

    * BoJ keep rates unchanged, sticks to easy policy
    * Central banks in focus this week
    * U.S. 2-year note auction attracts strong demand

 (Adds comment, U.S. 2-year note auction results, updates price,
table)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Jan 23 (Reuters) - U.S. Treasury debt yields
weakened on Tuesday in quiet trading, moving in tandem with
Japanese government bond yields, after the Bank of Japan kept
interest rate targets unchanged and its top official quashed
speculation of a move away from an easy monetary policy.
    Benchmark U.S. 10-year yields, which move inversely to
prices, fell for the first time in five days, while those on
30-year bonds sank to a one-week low. 
    In Japan, the 10-year Japanese government bond yield dipped
to 0.070 percent, slipping further from a
six-month high of 0.090 percent set last week.
    JGB yields fell on the BoJ decision and after Governor
Haruhiko Kuroda said he saw no immediate need to raise rates or
slow the bank's purchases of exchange-traded funds - one of its
stimulus measures.
    "This rally in Treasury prices is coming from overseas,
especially the comments from the BoJ that they will keep policy
accommodative," said Subadra Rajappa, head of U.S. rates
strategy at Societe Generale in New York.
    In late trading, U.S. 10-year Treasury yields
fell to 2.627 percent, from 2.663 percent late on Monday. 
    U.S. 30-year bond yields, meanwhile, hit a one-week low of
2.879 percent and was last at 2.907 percent, down
from Monday's 2.927 percent.
    U.S. 2-year note yields were also down, trading at 2.048 
percent.
    A solid $26 billion 2-year note auction added to bids in
Treasuries. The note's high yield of 2.066 percent was lower
than yield expected at the bid deadline and was the highest
award rate since September 2008.
    "Despite the high yield, we're not confident that owning
(2s) here is a winning strategy," said Aaron Kohli, rates
strategist, at BMO Capital Markets in New York.
    Bids totaled nearly $83.8 billion for a strong 3.22
bid-to-cover ratio, the highest since September 2015. Indirect
bidders, which include foreign central banks, took 58.3 percent
versus 40 percent from the previous auction. 
    Societe's Rajappa said the central banks are still in focus
over the next two weeks, with upcoming policy meetings at the 
European Central Bank later this week and the Federal Reserve
next week.
    The Fed is not expected to raise interest rates next week,
as investors priced in a rate hike in March. The market though
was more focused on the ECB.
    "Both the ECB and the BoJ are stuck between a rock and a
hard place," said Rajappa "If they sound too hawkish, then their
currencies start to appreciate and it kind of hurts their
ability to make progress on the inflation front."
    
      Tuesday, Jan. 23 at 1428 EST (1928 GMT):
                               Price                  
 US T BONDS MAR8               149-7/32     0-17/32   
 10YR TNotes MAR8              122-112/256  0-88/256  
                               Price        Current   Net
                                            Yield     Change
                                            (pct)     (bps)
 Three-month bills             1.4225       1.4475    -0.010
 Six-month bills               1.6          1.6355    -0.013
 Two-year note                 99-174/256   2.0445    -0.028
 Three-year note               99-126/256   2.1771    -0.033
 Five-year note                98-164/256   2.4188    -0.042
 Seven-year note               98-26/256    2.5503    -0.043
 10-year note                  96-200/256   2.6242    -0.039
 30-year bond                  96-248/256   2.9025    -0.025
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        20.00         0.00    
 spread                                               
 U.S. 3-year dollar swap        18.75        -0.75    
 spread                                               
 U.S. 5-year dollar swap         6.00        -1.00    
 spread                                               
 U.S. 10-year dollar swap        2.00        -2.25    
 spread                                               
 U.S. 30-year dollar swap      -14.50        -3.00    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Lisa
Shumaker)
  
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