June 12, 2017 / 3:14 PM / 5 months ago

TREASURIES-Yields rise as traders await debt auctions, Fed meeting

    * 2-,3-year yields hit multi-week highs
    * Treasury to sell $56 bln in debt this week
    * Fed expected to hike rates Wednesday, future signaling

    By Sam Forgione
    NEW YORK, June 12 (Reuters) - Short-dated U.S. Treasury
yields hit multi-week peaks on Monday ahead of three- and
10-year note auctions, while uncertainty about whether the
Federal Reserve will take a hawkish or dovish stance this week
limited the move higher in yields. 
    The U.S. Treasury will auction 3-, 10- and 30-year debt
totaling $56 billion this week. Traders typically sell
Treasuries ahead of auctions to make way for the new supply of
government debt, pushing yields higher.
    U.S. two-year yields touched 1.359 percent, their
highest in a month, while three-year yields touched their
highest since May 24 at 1.500 percent ahead of three- and
10-year note auctions on Monday. Yields on Treasuries maturing
between five and 30 years also hit session highs, but remained
below Friday's levels. 
    Investors were cautious ahead of the Fed's two-day meeting
beginning on Tuesday, with analysts saying the U.S. central bank
could take an aggressively hawkish posture of signaling a
balance sheet reduction later this year and another interest
rate increase in December. 
    "Wednesday’s meeting is pretty much a high-risk event," said
Charles Comiskey, head of Treasuries trading at Bank of Nova
Scotia in New York.
    Rates futures prices mirrored Wall Street's consensus that
Fed policymakers would raise key overnight borrowing costs by a
quarter point to a target range of 1.00 percent to 1.25 percent
at the end of the two-day meeting on Wednesday.
    Prices suggested traders were uncertain about whether the
Fed would embark on a third rate increase in 2017, however, and
implied traders have not fully priced in the Fed's target range
on rates reaching 1.25 percent to 1.50 percent until late 2018.

    The Fed could take the hawkish stance of hinting it could
taper its balance sheet in September while also hiking rates
again in December, said Aaron Kohli, interest rates strategist
at BMO Capital Markets in New York. 
    Treasury yields could fall, however, if the Fed takes a more
dovish stance of signaling it will taper this year but not hike
rates in the second half of 2017, Kohli said. A more dovish
stance is seen as possible in part due to recent signs of
softening inflation.
    That uncertainty over Fed policy kept yields from moving
even higher on Monday, Kohli said. 
    Benchmark 10-year Treasuries were last down 5/32
in price to yield 2.216 percent, from a yield of 2.199 percent
late on Friday. U.S. 30-year yields were at 2.866
percent, up from 2.853 percent late on Friday.
    June 12 Monday 10:49 a.m. New York / 1449 GMT
 US T BONDS SEP7               154          -0-7/32   
 10YR TNotes SEP7              126-76/256   -0-32/25  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.9925       1.0087    0.003
 Six-month bills               1.1075       1.129     0.005
 Two-year note                 99-204/256   1.355     0.020
 Three-year note               100-2/256    1.4971    0.019
 Five-year note                99-220/256   1.7797    0.017
 Seven-year note               99-220/256   2.0217    0.015
 10-year note                  101-112/256  2.2127    0.014
 30-year bond                  102-188/256  2.8633    0.010
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        19.50        -1.25    
 U.S. 3-year dollar swap        17.50        -1.25    
 U.S. 5-year dollar swap         7.75        -0.25    
 U.S. 10-year dollar swap       -5.00        -0.25    
 U.S. 30-year dollar swap      -43.25        -0.25    
 (Reporting by Sam Forgione; Editing by Meredith Mazzilli)

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