March 12, 2018 / 8:34 PM / 10 months ago

TREASURIES-Demand for Treasuries steady even with increased supply

    * Treasury sells $28 bln in three-year notes, $21 bln in

 (Updates news, quotes, prices, table)
    By Kate Duguid
    NEW YORK, March 12 (Reuters) - Increased supply did not
quell demand for three- and 10-year Treasury notes auctioned
Monday, a positive sign for the heavy issuance expected in the
year ahead. 
    Monday's auctions saw the $28 billion three-year note
 sold at slightly lower-than-expected yields at 2.436
percent, suggesting steady demand from investors. The high yield
at the $21 billion 10-year note reopening was 1
basis point below the expected number. 
    "It was an on-the-screws type auction. Nothing really stood
out. You can consider that a good thing, given this year will
see more and more Treasuries issued,” said George Goncalves,
head of U.S. rates strategy at Nomura Securities International
in New York.
    The increased supply did exert some pressure on prices. The
ratio of bids to the amount sold was slightly below average for
both maturities, but the difference was not significant enough
to suggest waning demand. The three-year supply had increased by
$2 billion from the last auction, and the 10-year reopening was
$1 billion larger than the last reopening. 
    The supply of U.S. debt at auction has increased as the
Federal Reserve has begun to withdraw liquidity and reduce its
bond buying. The government has also been forced to boost
issuance to help fund President Donald Trump's tax overhaul and
two-year budget deal.
    The federal debt load is expected to swell by as much as
$1.5 trillion because of the tax overhaul signed into law in
December, while the budget agreement would boost government
spending by almost $300 billion over the next two years.  
    Still, "We're not at a point yet where auction sizes are so
big that it causes real digestion issues," said Tom Simons,
money market economist at Jefferies & Co in New York, referring
to February's near-record issue of supply. "We're still talking
about the difference between a really good auction and an
average one." 
    The primary focus this week will be the publication on
Tuesday of Consumer Price Index data for February, a key measure
of inflation. The number for January beat estimates, increasing
expectations the Fed may raise interest rates four times in
    The yield on the three-year note was last at
2.425 percent, slightly off the 10-year high of 2.455 percent
reached on Friday. The benchmark 10-year government note
 was last at 2.868 percent, down from 2.957 percent
hit on Feb. 21, its highest since trading above 3 percent in
January 2014. 
    March 12 Monday 3:29PM New York / 1929 GMT
 US T BONDS JUN8               143-24/32    0-20/32   
 10YR TNotes JUN8              120-52/256   0-44/256  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.655        1.6846    0.010
 Six-month bills               1.835        1.8774    -0.003
 Two-year note                 99-248/256   2.2661    0.000
 Three-year note               99-130/256   2.4248    -0.011
 Five-year note                99-242/256   2.6367    -0.017
 Seven-year note               99-188/256   2.7921    -0.020
 10-year note                  98-252/256   2.8681    -0.026
 30-year bond                  97-124/256   3.13      -0.029
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        31.25         0.75    
 U.S. 3-year dollar swap        26.50         0.75    
 U.S. 5-year dollar swap        14.75         1.25    
 U.S. 10-year dollar swap        3.00         0.50    
 U.S. 30-year dollar swap      -15.50         1.00    



 (Reporting by Kate Duguid; Editing by Andrea Ricci)
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