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TREASURIES-U.S. bond prices gain on solid 7-year note auction
May 26, 2016 / 7:46 PM / 2 years ago

TREASURIES-U.S. bond prices gain on solid 7-year note auction

* Brisk $28 bln U.S. 7-year debt sale stokes bond demand

* U.S. durable goods mixed, pending home sales stellar

* U.S. 2-year, 5-year yields recede from 10-week peaks

* Fed’s Bullard says traders read FOMC minutes correctly (Updates market action, adds quote)

By Richard Leong

NEW YORK, May 26 (Reuters) - U.S. Treasury prices rose on Thursday as solid bidding at a $28 billion seven-year note sale kindled bond demand, driving shorter-dated yields down from 10-week highs and upstaging data that supported the view of steady U.S. growth.

The seven-year auction followed robust sales of two-year and five-year U.S. government debt, which investors say appeal to investors, especially those overseas who face near-zero or negative yields.

“U.S. yields are attractive versus the rest of the world,” said Jack Flaherty, who co-manages GAM’s Unconstrained Bond Strategy in New York.

Treasury prices also rose on bargain-hunting following the backup in U.S. yields the previous two sessions. Moreover, some fund managers added longer-dated Treasuries for month-end rebalancing in an effort to match expected changes of their portfolio benchmarks, analysts said.

“The dip-buying is definitely there. Also some in the market don’t think the Fed could hike rates any time soon,” said Aaron Kohli, interest rates strategist at BMO Capital Markets in New York.

Treasury yields were higher than a week earlier, prompted by hawkish minutes on the Fed’s April policy meeting and comments from several Fed officials who suggested a rate increase could come as early as June if the economy recovers from a weak first quarter.

On Thursday, St. Louis Fed President James Bullard said he thought traders interpreted the April minutes “correctly.”

The jury is still out on whether domestic data is strong enough to support a rate increase from the Fed’s current 0.25-0.50 percent target range, analysts said.

The government said on Thursday orders for durable goods jumped 3.4 percent in April, but the proxy for business spending plans fell for a third straight month.

On the other hand, initial jobless claims declined more than forecast last week, and pending home sales jumped to their strongest levels in more than decade in April.

Interest rates futures implied traders retreated to a 26 percent chance the Fed would raise rates at its June 14-15 policy meeting, down from 34 percent on Wednesday, according to CME Group’s FedWatch program.

Benchmark 10-year Treasury notes were up 10/32 in prices, yielding 1.833 percent, down 4 basis points from late on Wednesday.

The two-year yield was down 4 basis points at 0.875 percent, while the five-year yield slipped 5 basis points at 1.352 percent.

On Wednesday, two-year and five-year yields reached their highest in 10 weeks at 0.938 percent and 1.424 percent, respectively. (Reporting by Richard Leong; Editing by Will Dunham and Dan Grebler)

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