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TREASURIES-U.S. bond yields rise on corporate hedging
October 18, 2016 / 1:42 PM / a year ago

TREASURIES-U.S. bond yields rise on corporate hedging

By Richard Leong
    NEW YORK, Oct 18 (Reuters) - 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
unit. 
    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
on Monday.
    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
                               Price                  
 US T BONDS DEC6               163-11/32    -0-19/32  
 10YR TNotes DEC6              130-8/256    -0-24/25  
                                            6         
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 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       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        22.00         0.00    
 spread                                               
 U.S. 3-year dollar swap        13.75         0.00    
 spread                                               
 U.S. 5-year dollar swap         1.25        -0.25    
 spread                                               
 U.S. 10-year dollar swap      -17.50        -0.50    
 spread                                               
 U.S. 30-year dollar swap      -57.25        -0.75    
 spread                                               
 
 (Reporting by Richard Leong; Editing by Nick Zieminski)

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