By Richard Leong
NEW YORK, Oct 18 U.S. Treasury yields rose on
Tuesday with benchmark yields hovering near four-month highs as
bond dealers sold government bonds to hedge a large global bond
issue from Saudi Arabia they are underwriting.
Bond yields had fallen earlier following a government report
on domestic consumer prices which showed underlying inflation
trend moderated in September. This raised concerns it may take
longer than expected for inflation to reach the Federal
Reserve's 2-percent target.
"The Saudi deal. That's the word on the street," Aaron
Kohli, interest rates strategist at BMO Capital Markets in New
York said of the factor that propelled bond yields higher.
Other investors also cited the Saudi deal as a main factor
in Tuesday's trading, which saw low volumes and low volatility.
Saudi Arabia plans to sell a multi-part bond issue worth $10
billion to $15 billion, according to IFR, a Thomson Reuters
Bond dealers typical sell Treasuries to hedge against a deal
they underwrite and they buy them back after the deal is sold.
Benchmark 10-year Treasury notes were last down
4/32 in price for a yield of 1.780 percent, up 1 basis point on
the day and not far below a four-month peak of 1.841 percent set
Earlier Monday, the 10-year yield slipped to 1.752 percent
following data that showed underlying inflation moderated in
September, supporting the view there is ample slack in the
economy and the Federal Reserve would stay on a glacial path to
raise interest rates.
The U.S. Labor Department said the Consumer Price Index, its
broadest inflation gauge, rose 0.3 percent in September,
matching the median forecast among analysts polled by Reuters.
However the CPI core rate, which excludes volatile food and
energy prices, edged up 0.1 percent in September, falling short
of an expected 0.2 percent increase.
October 18 Tuesday 9:28AM New York / 1328 GMT
US T BONDS DEC6 163-11/32 -0-19/32
10YR TNotes DEC6 130-8/256 -0-24/25
Price Current Net
Yield % Change
Three-month bills 0.34 0.345 -0.003
Six-month bills 0.4725 0.4802 0.002
Two-year note 99-222/256 0.8188 -0.004
Three-year note 100-16/256 0.9787 -0.002
Five-year note 99-86/256 1.2639 0.008
Seven-year note 98-188/256 1.5679 0.012
10-year note 97-112/256 1.7855 0.020
30-year bond 93-192/256 2.5505 0.027
DOLLAR SWAP SPREADS
Last (bps) Net
U.S. 2-year dollar swap 22.00 0.00
U.S. 3-year dollar swap 13.75 0.00
U.S. 5-year dollar swap 1.25 -0.25
U.S. 10-year dollar swap -17.50 -0.50
U.S. 30-year dollar swap -57.25 -0.75
(Reporting by Richard Leong; Editing by Nick Zieminski)