July 20, 2017 / 7:31 PM / a year ago

TREASURIES-U.S. yields flat as dismal auction offsets ECB's easy stance

    * BOJ keeps rates steady, pushes back inflation target
    * Bidding at $13 bln 10-year TIPS sale weakest in nine years
    * Jobless claims hit near 5-month low last week
    * Philly Fed business index falls to eight-month trough

 (Updates throughout, adds quote)
    By Richard Leong
    NEW YORK, July 20 (Reuters) - U.S. government debt yields
were little changed on Thursday as buying tied to the European
Central Bank's pledge of easy money stemming from inflation
concerns faded after a poor auction of 10-year Treasury
Inflation-Protected Securities. 
    Benchmark U.S. yields touched three-week lows in step with
their German counterparts as ECB President Mario Draghi sought
to reassure markets that the ECB was in no rush to pare its
monthly asset purchase program amid speculation it might do so
later this year.
    "Inflation is the main concern right now. Until something
changes, it will rule the world," said Thomas Roth, head of U.S.
Treasury trading at MUFG Securities America in New York.
    Prior to the ECB's policy decision, the Bank of Japan
earlier on Thursday kept its rate target unchanged and
downgraded its inflation outlook.
    Concerns over low inflation will likely keep the Federal
Reserve from raising U.S. rates at its policy meeting next week,
analysts said.
    Amid the ECB and BOJ's cautious inflation view and last
week's disappointing reading on the U.S. consumer price index in
June, investors gave a cold shoulder to the latest supply of
TIPS, analysts said.
    "Nobody came. It's hard to get excited about an inflation
protection instrument right now," said Tom Simons, money market
strategist at Jefferies & Co. in New York.
    The ratio of bids to $13 billion of 10-year TIPS offered
, which is a proxy on auction demand, came in at
1.98, which was the lowest since July 2008, according to
Treasury data. 
    In late trading, the benchmark 10-year Treasury yield
 was down 0.2 basis point at 2.266 percent. It
touched a three-week low of 2.243 percent, breaking below its
50-day moving average, Reuters data showed.
    U.S. yields moved initially in step with their German yields
following the ECB's latest policy statement and Draghi's remarks
at his press conference. The 10-year Bund yield
bounced in a tight range, down 0.4 basis point at 0.535 percent.
    Earlier demand for Treasuries was capped by a hefty supply
of corporate bonds, whose issuance has totaled over $43 billion
so far this week, according to IFR, a Thomson Reuters unit. 

    On the data front,  the Labor Department said first-time
filings for jobless benefits fell to 233,000 in the week ended
July 15, which was the lowest since February.
    The Philadelphia Federal Reserve said its barometer on U.S.
Mid-Atlantic business activity fell to 19.5 in June, the weakest
reading in eight months.
July 20 Thursday 3:08PM New York / 1908 GMT
 US T BONDS SEP7               154-3/32     0-5/32    
 10YR TNotes SEP7              126-16/256   0-4/256   
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.125        1.1438    0.028
 Six-month bills               1.0925       1.1138    -0.008
 Two-year note                 99-204/256   1.3562    0.000
 Three-year note               99-246/256   1.5134    -0.006
 Five-year note                99-168/256   1.8229    0.002
 Seven-year note               99-128/256   2.0776    -0.002
 10-year note                  100-244/256  2.266     -0.002
 30-year bond                  103-72/256   2.8361    -0.009
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        24.25         0.50    
 U.S. 3-year dollar swap        20.25         1.25    
 U.S. 5-year dollar swap         7.75         0.50    
 U.S. 10-year dollar swap       -3.50         0.50    
 U.S. 30-year dollar swap      -31.00         1.00    

 (Reporting by Richard Leong)
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