November 28, 2018 / 3:40 PM / 7 months ago

TREASURIES-Yields tick up ahead of Fed Chair Powell's speech

* Fed Chair Powell to speak at 12 p.m. ET

* Yields unchanged on the day

* Auction of $32 bln 7-year notes at 1 p.m. ET

By Kate Duguid

NEW YORK, Nov 28 (Reuters) - U.S. government bond yields were up modestly on Wednesday morning as traders held back from making big moves before a speech by Federal Reserve Chair Jerome Powell, which will be scrutinized for clues about future interest rate hikes.

Yields at the short end of the curve were up between 1 and 2 basis points, with the 10-year note yield up 1.3 basis points, and the 30-year yield up about a point. The two-year yield reflects traders’ expectations of interest rate hikes, with this morning’s relatively small move indicating a raise in December has been almost fully priced in by the market.

Powell was set to speak on the central bank’s methods for evaluating financial stability at noon ET (1700 GMT). The speech will be his first since market-roiling volatility picked up at the start of October. In that period, President Donald Trump’s criticism of the central bank’s pace of hikes has intensified.

“We did get some data this morning, but nothing is really impactful. The market is really looking for guidance from the Fed,” said Subadra Rajappa, head of U.S. rates strategy at Societe Generale.

Gross domestic product increased at a 3.5 percent annualized rate, the Commerce Department said on Wednesday in its second estimate of third-quarter GDP growth. That was unchanged from its estimate in October and well above the economy’s growth potential, which economists estimate to be about 2 percent.

In a speech on Monday, Fed Vice Chair Richard Clarida backed further rate hikes and said the bank should be even more attentive to new economic data in the coming year. Rajappa said she expected Powell to reiterate the point about data dependency in his speech on Wednesday.

The Treasury Department will auction off $32 billion in seven-year notes at 1 p.m. ET (1800 GMT). The offering is $1 billion more than the prior month’s, and is the biggest since April 2010. This will be the third auction this week, which will see a total of $129 billion in new notes sold.

Bond issuance has risen steadily this year to pay for Trump’s tax cuts and spending increases. Although some market participants have worried that the increased supply will diminish demand, some of that fear may have been waylaid by strong demand at the two prior note auctions this week.

“That’s the benefit of being a reserve currency. If you have a large sell-off in risky assets, the flight to quality tends to be into Treasuries,” said Rajappa. (Reporting by Kate Duguid; editing by Jonathan Oatis)

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