May 9, 2018 / 8:16 PM / a year ago

TREASURIES-Benchmark yield over 3 pct after fair demand at auction

 (Updates yields, table, analyst comments)
    By Kate Duguid
    NEW YORK, May 9 (Reuters) - The yield on the benchmark U.S.
government note rose back above the psychologically significant
level of 3 percent on Wednesday afternoon following fair
investor demand at auction for $25 billion in new 10-year notes.
    The possibility of a 3 percent coupon for the first time in
seven years drew investors to the auction. While that proved
elusive, the yield at auction was 2.995 percent, the highest
level reached since January 2014. 
    "At the 3 percent level, bonds, in our view, are actually
attractive for long-term investors," said Krishna Memani, chief
investment officer at OppenheimerFunds in New York.
    Demand from direct bidders was notable, with the large
institutions and foreign countries that buy Treasuries directly
at auction rather than through banks taking home 8.3 percent of
the supply, about a percentage point over the six-week average.

    Wednesday's auction is part of the $73 billion in new U.S.
debt the Treasury Department will sell this week to meet its
second-quarter financing needs. May's quarterly refunding
package is up from the $66 billion offered in February, with an
increase of $1 billion in the size of the 10-year issuance. More
supply tends to drive down Treasury prices, which pushes yields
    "Given the economic fundamentals... and that Treasury is not
likely to be cutting back on auction sizes anytime in the near
future, it doesn't make sense for (yields) to continue to stay
below 3 percent," said Thomas Simons, money market economist at
Jefferies & Co. in New York.
    The Treasury on May 2 announced the increased supply of debt
to offset the impact of the Federal Reserve's reduction in its
bond buying. The new debt supply will also be used to fund the
$1.5 trillion the Republican government's tax cut bill will add
to the federal deficit. 
    The 10-year note yield was last trading at 3.006
percent, up from Tuesday's close. Across maturities, yields were
generally higher: the 30-year bond yield was 3.163
percent, adding 4 basis points since its last close ahead of
Thursday's auction of $17 billion of new supply at that
    Yields were up in spite of disappointing gains in U.S.
producer prices reported by the Labor Department on Wednesday. 
     The producer price index barely rose in April after a
strong gain in the first quarter, held down by a moderation in
the cost of both goods and services, which could ease fears that
inflation pressures were rapidly building up.
    April's consumer price data, one of the most closely watched
measures of inflation, will be released Thursday morning. 
      May 9 Wednesday 3:57PM New York / 1957 GMT
 US T BONDS JUN8               142-18/32    -0-26/32  
 10YR TNotes JUN8              119-60/256   -0-72/25  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.85         1.8845    0.011
 Six-month bills               2.0125       2.0614    0.018
 Two-year note                 99-178/256   2.5341    0.021
 Three-year note               99-212/256   2.685     0.023
 Five-year note                99-150/256   2.8398    0.033
 Seven-year note               99-120/256   2.9598    0.038
 10-year note                  97-216/256   3.0061    0.038
 30-year bond                  96-232/256   3.161     0.036
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        24.75        -1.25    
 U.S. 3-year dollar swap        19.75        -2.50    
 U.S. 5-year dollar swap        11.50        -0.75    
 U.S. 10-year dollar swap        2.75        -0.75    
 U.S. 30-year dollar swap      -10.50        -0.25    


 (Reporting by Kate Duguid; Editing by Dan Grebler and Chizu
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