May 22, 2018 / 6:29 PM / a year ago

TREASURIES-Dealers take large share of U.S. 2-year note sale

 (Recasts with auction results; adds quotes, updates prices)
    * Treasury sells $33 bln in two-year notes
    * U.S. will sell $36 bln in five-year notes on Wednesday
    * Federal Reserve meeting minutes on Wednesday in focus

    By Karen Brettell
    NEW YORK, May 22 (Reuters) - The U.S. Treasury Department
sold $33 billion in two-year notes to fair demand on Tuesday,
the first sale of $99 billion in coupon-bearing supply this
    The sale came as two-year yields held just below almost
10-year highs reached on Thursday, as investors bet the Federal
Reserve will raise rates at least two more times this year.  
    The two-year notes sold at a high yield of 2.59 percent,
just below where they traded before the auction. Dealers took
45.37 percent of the sale, their largest share since Dec. 2016.
    "It wasn’t terrible, it wasn’t super good, and the stats
were really sluggish," said Aaron Kohli, an interest rate
strategist at BMO Capital Markets in New York. 
    The Treasury has been increasing the size of its auctions as
it increases debt to pay for the rising deficit, which is being
hurt by spending increases, and to make up for declining
purchases by the Fed.
    The two-year note auction size has increased from $26
billion in January.
    Large dealers have had to absorb much of this increase as
demand from other investors has failed to make up for the
increase in supply.
    "Those balance sheets are starting to feel very heavy,"
Kohli said. 
    Demand for this week’s U.S. debt sales is being watched for
indications on whether last week’s sell-off attracts buyers, or
if investors are reticent to buy the debt with further weakness
    The government will sell $36 billion in five-year notes on
Wednesday and $30 billion in seven-year notes on Thursday, in
addition to $16 billion in two-year floating rate notes on
    Wednesday's five-year note sale will come just before the
Fed releases minutes from its May meeting, which will be further
evaluated for indications of how many rate hikes are likely this
    The U.S. central bank left rates unchanged at the meeting
and expressed confidence that a recent rise in inflation to near
its target would be sustained, leaving it on track to raise
borrowing costs in June.             

 (Reporting by Karen Brettell; Editing by Dan Grebler)
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