September 5, 2017 / 8:08 PM / 10 months ago

TREASURIES-North Korea and storm jitters spur U.S. bond market rally

    * Fears of Irma slamming southern U.S. add to safety bids
    * Debt ceiling concerns sour demand at 1-month bill auction
    * Companies seen selling $35 bln-$40 bln in high-grade debt
    * Fed should be cautious as inflation stays weak -Brainard

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, Sept 5 (Reuters) - The U.S. Treasuries market
rallied on Tuesday, with the 10-year yield hitting a near
10-month low, as worries about further nuclear tests by North
Korea and concerns about Irma, a powerful storm heading toward
the southern United States, spurred safety bids.
    Yields on Treasury bills due in October remained elevated as
investors await developments on whether U.S. lawmakers would
reach a deal to increase the federal debt ceiling in a bid to
avert a default.
    "It's definitely North Korea. It's partly Irma. You are
looking at another possible hit to our economy," said Karl
Haeling, vice president at Landesbank Baden-Wurttemberg in New
    Irma, rated as a highly dangerous Category 5 hurricane,
could reach the southern U.S. this weekend only days after
Harvey caused damages estimated in the tens of billions of
dollars in Texas and Louisiana.
    The latest storm and possibly more on the way added to
investors jitters after North Korea's nuclear test on Sunday,
which the secretive country said was an advanced hydrogen bomb
for a long-range missile, drawing global condemnation.

    Traders and analysts said the decline in U.S. yields was
partly offset by hedging activity tied to an expected $35
billion to $40 billion worth of investment-grade corporate bond
supply to hit this week, according to IFR, a Thomson Reuters
    In other events affecting yields, Federal Reserve Governor
Lael Brainard said the U.S. central bank should be cautious
about raising interest rates further as inflation has been stuck
below the Fed's 2 percent goal.
    Brainard's perceived dovish remarks pushed the two-year
yield, which is most sensitive to traders' view on
Fed policy, to 1.290 percent, the lowest level in over three
    The yield on benchmark 10-year Treasury notes
was down 9 basis points at 2.070 percent. Earlier on Tuesday the
yield hit 2.065 percent, which was its lowest level since Nov.
    Treasury yields posted their biggest one-day decline since
May 17, when former FBI chief Robert Mueller was named as the
special counsel to investigate possible collusion between
President Donald Trump's 2016 presidential campaign and Russia.

    U.S. financial markets were closed on Monday for the Labor
Day holiday.
    Concerns whether the federal debt ceiling would be raised in
time to avert a default resulted in a lousy one-month bill
auction and the highest interest rate on one-month T-bills
 in nine years at 1.300 percent.
    Top Republicans and Democrats have hinted they would at
least arrive at a temporary agreement to fund the government and
increase the federal borrowing limit to prevent a shutdown and a
  September 5 Tuesday 3:48PM New York / 1948 GMT
 US T BONDS DEC7               157-3/32     1-29/32   
 10YR TNotes DEC7              127-108/256  0-192/25  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.995        1.0112    0.000
 Six-month bills               1.085        1.1059    0.010
 Two-year note                 99-234/256   1.294     -0.052
 Three-year note               100-78/256   1.3938    -0.065
 Five-year note                99-230/256   1.6463    -0.087
 Seven-year note               99-224/256   1.8942    -0.092
 10-year note                  101-164/256  2.0665    -0.091
 30-year bond                  101-72/256   2.6874    -0.081
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        21.75         1.25    
 U.S. 3-year dollar swap        18.75         0.75    
 U.S. 5-year dollar swap         6.75         1.00    
 U.S. 10-year dollar swap       -5.25         0.00    
 U.S. 30-year dollar swap      -34.75         0.00    

 (Reporting by Richard Leong; Editing by Paul Simao and Leslie
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