January 12, 2017 / 9:16 PM / 6 months ago

TREASURIES-Weak U.S. 30-year bond sale curbs yield fall

5 Min Read

* U.S. sells $12 bln in 30-year bond supply to soft demand
    * U.S. yields fall more as Trump mum on policy details
    * Fed officials see quick economic lift from Trump
    * U.S. 10-year yield dips below 50-day moving average

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, Jan 12 (Reuters) - A weak $12 billion 30-year bond
auction cooled a rally in the U.S. Treasuries market on
Thursday, lifting bond yields from their initial lows as traders
reduced their bets on inflation and federal borrowing under a
Trump administration.
    Ten-year and 30-year yields touched their lowest levels
since November early Thursday as the bond market continued 
to recover from its dramatic selloff following Donald Trump's
surprise presidential win on Nov. 8. 
    Longer-dated Treasury yields have fallen from their highest
levels in over two years reached in mid-December on renewed
appetite for bonds and a lack of details on economic stimuli
pledged by Trump during his campaign.
    Traders had bet that Trump, with a Republican-controlled
Congress, would enact measures to promote spending and
investment, which may also fuel inflation and federal borrowing.
    "People have come to the realization that we haven't seen
anything yet," said Carl Kaufman, portfolio manager at Osterweis
Capital Management in San Francisco.
    Trump, in his first news conference since capturing the
White House on Wednesday, did not disclose more on his plan for
tax cuts, infrastructure spending and looser regulations. 
 
    Given the lack of specificity on Trump's economic policies,
bond yields have more room to fall, analysts said.
    "Even now we are still a bit high from where yields should
be," said Robert Tipp, chief investment strategist at PGIM Fixed
Income in Newark, New Jersey.
    The yield on benchmark 10-year Treasury notes 
was 2.356 percent, down 1 basis point from late Wednesday.
Earlier it fell below its 50-day moving average, a bullish
technical signal, for the first time since late September,
according to Reuters data.
    The 30-year bond yield was little changed on the
day at 2.956 percent after touching 2.902 percent, the lowest in
two months.
    As traders second-guessed Trump's economic policies, Federal
Reserve officials hinted on Thursday that more interest rate
increases are coming following a last December's quarter point
hike that had been widely expected. 
    But they cautioned a short-term economic bump from possible
tax cuts, infrastructure spending and deregulation under Trump
could result in longer-run inflation and debt problems.
 
    Despite the likelihood of more rate hikes, investors seem
focused on adding bonds back to their portfolios after dumping
them following Trump's election win, analysts said.
    Following solid demand for $24 billion in three-year debt
and $20 billion in 10-year debt earlier this week, bidding at
Thursday's 30-year bond sale fell short of
expectations, analysts said. 
  Thursday, Jan. 12 at 1547 EST (2047 GMT):
                               Price                  
 US T BONDS MAR7               152-22/32    -0-4/32   
 10YR TNotes MAR7              124-240/256  0-32/256  
                               Price        Current   Net
                                            Yield     Change
                                            (pct)     (bps)
 Three-month bills             0.515        0.5228    0.008
 Six-month bills               0.5875       0.5974    -0.003
 Two-year note                 100-36/256   1.1773    -0.008
 Three-year note               99-198/256   1.4526    -0.010
 Five-year note                100-168/256  1.8609    -0.015
 Seven-year note               100-140/256  2.1649    -0.012
 10-year note                  96-228/256   2.3558    -0.014
 30-year bond                  98-104/256   2.9556    -0.001
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        29.25         0.00    
 spread                                               
 U.S. 3-year dollar swap        20.75        -0.25    
 spread                                               
 U.S. 5-year dollar swap         4.50         0.25    
 spread                                               
 U.S. 10-year dollar swap      -12.50         0.00    
 spread                                               
 U.S. 30-year dollar swap      -48.00         0.50    
 spread                                               
 
 (Reporting by Richard Leong; Editing by Chizu Nomiyama)

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