May 8, 2017 / 7:07 PM / 7 months ago

TREASURIES-U.S. bond yields rise ahead of supply from Treasury refunding

    * U.S. Treasury to sell $62 bln in bonds at quarterly
    * Macron's French presidential win pares bonds' safe-haven
    * Fed's Bullard sees little need for Fed to hike rates
    * Fed's Mester sees need for more rate increases as economy

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, May 8 (Reuters) - U.S. Treasury yields rose on
Monday with benchmark yields hitting a four-week high in advance
of the sale of $62 billion in bond supply at this week's
quarterly refunding and following centrist Emmanuel Macron's
victory in the French presidential run-off.
    Macron's win on Sunday revived appetite for stocks,
propelling the S&P 500 and Nasdaq briefly to record highs. It
also reduced safe-haven demand for bonds as some traders had
feared a possible upset by his anti-European Union rival Marine
Le Pen.
    With the closely watched French election in the rear view
mirror, traders will focus on this week's domestic data and
demand at the quarterly refunding, analysts said.
    "It has to do with supply later this week. It's setting for
the auctions," said Subadra Rajappa, head of U.S. rates strategy
at SG 
    The week's key reports will be those on producer and
consumer prices as well as retail sales, analysts said.
    The Treasury Department on Tuesday will kick off its
refunding with a $24 billion sale of three-year notes, and it
will repay $49.7 billion to investors on maturing bonds 
    It will sell $23 billion in 10-year Treasuries
 on Wednesday and $15 billion in 30-year bonds
 on Thursday.
    The benchmark 10-year note yield was up 2 basis
points at 2.374 percent after touching 2.390 percent earlier
Monday which was the highest since April 10. 
    The yield on 30-year bonds was 2 basis points
higher at 3.011 percent, while the two-year yield was
up 1 basis point at 1.330 percent.
    Demand for this week's Treasury supply will be based partly
on investors' perception of further rate increases from the
Federal Reserve, analysts said.
    Interest rate futures implied traders saw an 83 percent
chance the central bank would raise rates by a quarter point to
1.00-1.25 percent at its June 13-14 policy meeting, up
from 79 percent late on Friday, CME Group's FedWatch program
    Earlier on Monday, St. Louis Fed President James Bullard
said strong bond demand and sluggish workforce growth would keep
a lid on rates for the forseeable future, which would allow the
Fed to keep rates at current levels.
    At a separate event, Cleveland Fed chief Loretta Mester said
further rate increases are warranted as the economy has reached
the Fed's employment goal and is closing in on its 2 percent
inflation target.
May 8 Monday 2:44PM New York / 1844 GMT
 US T BONDS JUN7               151-12/32    -0-14/32  
 10YR TNotes JUN7              125-20/256   -0-36/25  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.8825       0.8966    0.005
 Six-month bills               1.0075       1.0266    0.011
 Two-year note                 99-216/256   1.3303    0.012
 Three-year note               99-238/256   1.5245    0.016
 Five-year note                99-226/256   1.8998    0.017
 Seven-year note               98-208/256   2.1844    0.019
 10-year note                  98-236/256   2.3741    0.022
 30-year bond                  99-204/256   3.0102    0.021
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        28.50        -0.75    
 U.S. 3-year dollar swap        24.75        -1.25    
 U.S. 5-year dollar swap         9.25         0.00    
 U.S. 10-year dollar swap       -6.25         0.00    
 U.S. 30-year dollar swap      -45.00         0.50    

 (Reporting by Richard Leong; Editing by Meredith Mazzilli and
Chizu Nomiyama)

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