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TREASURIES-Yields hit 4-month highs on supply, FOMC minutes cap rise
October 12, 2016 / 8:01 PM / 10 months ago

TREASURIES-Yields hit 4-month highs on supply, FOMC minutes cap rise

* Congested auction schedule of 3-, 10-year notes prompts
selloff
    * FOMC minutes show Fed looks to hike in 2016, but slowly
after
    * 10-year yields hit highest since June 3
    * 30-year bond yields hit highest since Brexit vote

 (New throughout, updates prices, market activity and comments)
    By Dion Rabouin
    NEW YORK, Oct 12 (Reuters) - U.S. Treasury yields rose on
Wednesday, with bonds pressured by incoming supply and growing
expectations that the Federal Reserve will raise interest rates
later this year.
    Yields rose to their highest in four months in early
trading, then retreated after the release of minutes from last
month's Federal Open Market Committee meeting. These suggested
that while a December rate hike is likely, any further increases
will be gradual. 
    Additionally, solid demand at 3- and 10-year note auctions
allayed investor fears of weakening appetite for U.S. government
debt.
   "The auction (results) are important because it tells you
there's still a demand in the market for the bonds," said Kris
Kowal, managing director at DuPont Capital Management in
Philadelphia.
    Worry about weak demand and a hawkish signal from the FOMC
minutes pushed yields on benchmark 10-year notes above 1.80
percent for the first time in four months while 30-year bond
yields hit their highest since June 23, the day of Britain's
surprise vote to exit the European Union.
    Yields on shorter-dated maturities, such as two-year notes 
 also rose to their highest since early June.   
    Investors had been on alert for signs of deeper divisions
within the FOMC after three members dissented at last month's
meeting in favor of raising rates. 
    "The market continues to anticipate bad news at every turn
and this was the first time in roughly 48 hours that anticipated
bad news really did not deliver," said Jim Vogel, interest rate
strategist at FTN Financial in Memphis, Tennessee. 
    "That wasn't enough to cause a rally but it was certainly
enough to avoid further selling."
    Treasury prices were also pressured by concern that
inflation could accelerate now that oil prices are back above
the $50 level. Rising inflation reduces the value of already
held bonds.
    Another $12 billion in a reopening of 30-year bonds will be
sold Thursday. In all, the market must absorb $56 billion in
supply this week, excluding T-bills.
    "Obviously it's been a very crowded week in terms of
Treasury supply," said Stan Sun, interest rates strategist at
Nomura Securities International in New York. 
    "All that is very congested in terms of bonds pressure and
the FOMC minutes sandwiched in the middle. I think that's
definitely causing pressure."

 (Reporting by Dion Rabouin; Editing by Dan Burns, Frances Kerry
and David Gregorio)

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