December 12, 2016 / 6:30 PM / 7 months ago

UPDATE 2-Soft U.S. bond auctions signal investor jitters

3 Min Read

(Recasts first paragraph, adds quote)

By Richard Leong

NEW YORK, Dec 12 (Reuters) - Investor demand was cool for auctions of $44 billion worth of longer-dated U.S. Treasuries on Monday, signaling the reluctance of the market to embrace bonds after U.S. President-elect Donald Trump's Nov. 8 election victory.

Bidding for $24 billion of three-year debt and $20 billion of 10-year notes marked their weakest levels in more than seven years, resulting in yields that were higher than traders had expected, Treasury data showed.

"Neither the three-year and 10-year auctions went particularly went," said John Canavan, market strategist at Stone & McCarthy Research Associates in Princeton, New Jersey.

The three-year and 10-year Treasury auctions came before the Federal Reserve's two-day policy meeting this week. Traders expect the U.S. central bank to raise interest rates by a quarter percentage point to a range of 0.50 percent to 0.75 percent.

The Treasury will sell $12 billion in 30-year bonds at 1 p.m. (1800 GM) on Tuesday.

Some analysts had expected a rebound in demand for Monday's Treasury supply after the chilly reception shortly after last month's U.S. election.

"There are definitely concerns about buyside demand," Canavan said.

Last month's bond market rout stemmed from worries about faster inflation and a surge in government borrowing under a Trump administration.

Treasury data on Monday showed a slight uptick in purchases by fund managers, foreign central banks and other indirect bidders at the 10-year note sale, but their purchases at the three-year auction fell to their lowest in 10 months.

The Treasury market brushed off Monday's lackluster auctions, with 10-year yields retreating further from their earlier peaks last seen in September 2014.

"We expect more of a consolidation in this range rather than higher yields," said Larry Dyer, U.S. fixed income strategist at HSBC Securities (USA) Inc. in New York.

Stone & McCarthy's Canavan, however, said it was too early to judge whether the worse stretch for the bond market since 2013 is over. "I wouldn't read too much into it at this point."

On the open market, the 10-year Treasury yield was up 2 basis points at 2.482 percent in late U.S. trading after hitting 2.528 percent, which was the highest level since September 2014, according to Reuters data.

The three-year yield was marginally lower at 1.401 percent, receding from an earlier peak of 1.457 percent, which was its highest level in over a week.

Reporting by Richard Leong; Editing by Meredith Mazzilli and Paul Simao

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