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TREASURIES-Yields stabilize after hitting highs on eve of Fed decision
June 13, 2017 / 7:46 PM / 6 months ago

TREASURIES-Yields stabilize after hitting highs on eve of Fed decision

    * Prices for services rose 0.3 percent last month
    * 3-, 2-year yields briefly hit roughly one-month highs
    * Traders await Fed statement Wednesday
    * Treasury sells $12 billion in 30-year bonds to strong
demand

 (Updates prices, adds comment)
    By Sam Forgione
    NEW YORK, June 13 (Reuters) - Short-dated U.S. Treasury
yields briefly hit multi-week highs on Tuesday after new data
showed rising U.S. services prices, but the market was barely
changed after a strong 30-year debt auction ahead of Wednesday's
Federal Reserve decision on interest rates.
    The Labor Department said prices for services rose 0.3
percent in May, driven by a 1.1 percent surge in the index for
final demand trade services, which measures changes in margins
received by wholesalers and retailers.
    U.S. three-year Treasury yields hit 1.511
percent, their highest since May 16, while two-year yields 
 touched their highest in a month of 1.367 percent. 
    Yields eased from their session highs and were last roughly
unchanged from their levels as of late Monday, with three- and
two-year yields last at 1.503 percent and 1.363 percent,
respectively. 
    Traders likely viewed more costly services as a harbinger of
stronger May consumer price index data, which is set for release
on Wednesday, said John Herrmann, director of interest rates
strategy at MUFG Securities in New York.
    That potential inflation pickup would follow recent readings
showing inflation moving away from the Fed's 2 percent goal. 
    The Fed is scheduled to announce its decision on interest
rates at 2 p.m ET (1800 GMT) on Wednesday at the conclusion of
its two-day policy meeting. The Fed is widely expected to raise
its benchmark interest rate for the second time this year.

    Herrmann of MUFG also said yields were pressured a bit
higher given the risk that the Fed could provide more detail on
its plans to shrink its bond portfolio. Short-dated Treasuries
in particular are considered most vulnerable to Fed rate
increases. 
    "The markets have to build in a little bit of risk that the
Fed may say something about tapering tomorrow," he said.
    The U.S. Treasury sold $12 billion of 30-year government
bonds at a yield of 2.870 percent, which was the lowest at an
auction of this debt maturity since October, Treasury data
showed.
    U.S. 30-year yields were last at 2.863 percent, compared to
2.868 percent late Monday. Long-dated yields earlier hit 2.886
percent, their highest since June 1. 
    "The bond auction coming in fairly well today probably
helped anchor prices," said John Briggs, head of strategy for
the Americas at NatWest Markets. "But tomorrow is the big day,
so we’re just kind of moving back to unchanged."
    Benchmark 10-year Treasury yields were last at
2.209 percent, compared to 2.213 percent late Monday.
    
    June 13 Tuesday 3:17PM New York / 1917 GMT
                               Price                  
 US T BONDS SEP7               153-31/32    0         
 10YR TNotes SEP7              126-92/256   0-8/256   
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.9925       1.0088    0.003
 Six-month bills               1.1075       1.1292    0.000
 Two-year note                 99-200/256   1.3633    0.004
 Three-year note               99-252/256   1.5053    0.003
 Five-year note                99-218/256   1.7813    0.003
 Seven-year note               99-220/256   2.0217    0.000
 10-year note                  101-120/256  2.2092    -0.004
 30-year bond                  102-180/256  2.8648    -0.003
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        20.00         1.00    
 spread                                               
 U.S. 3-year dollar swap        18.00         0.25    
 spread                                               
 U.S. 5-year dollar swap         9.00         2.00    
 spread                                               
 U.S. 10-year dollar swap       -3.00         2.75    
 spread                                               
 U.S. 30-year dollar swap      -40.25         3.75    
 spread                                               
 
 (Reporting by Sam Forgione; Editing by Andrea Ricci and Richard
Chang)
  

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