April 26, 2018 / 2:54 PM / a year ago

TREASURIES-U.S. 10-year yield dips under 3 pct before 7-year auction

    * U.S. seen selling 7-year note at highest yield in 8 years
    * Fall in core capital goods offset advance trade, jobless
    * ECB's Draghi plays down recent soft data on euro zone

 (Updates market action, adds quote, table)
    By Richard Leong
    NEW YORK, April 26 (Reuters) - U.S. Treasury yields fell on
Thursday, with the 10-year yield dipping below 3 percent as
buyers emerged following a week-long sell-off spurred by
concerns about rising inflation and growing borrowing by the
U.S. government.
    The U.S. Treasury Department will sell $29 billion in
seven-year notes at 1 p.m. (1700 GMT), the final part of this
week's fixed-rate coupon-bearing supply that brings its total to
$96 billion.
    "This is a consolidation phase for the market," said Larry
Dyer, head of U.S. rates strategy at HSBC Securities USA Inc. in
New York. "We need bond-bearish data to justify a further jump
in yields."
    Thursday's economic figures showed the U.S. economy remains
on a steady growth path but far from firing on all cylinders.
That supported the view the Federal Reserve would stick to its
gradual pace of rate increases and domestic inflation would stay
muted, though edging closer to the Fed's 2 percent goal.
    The Commerce Department said orders for non-defense capital
goods excluding aircraft, a closely watched proxy for business
spending plans, slipped 0.1 percent last month.
    On the other hand, it said the advance goods trade deficit
contracted sharply to $68.04 billion last month from $75.88
billion, reducing the drag on first-quarter economic growth.

    Moreover, the Labor Department said first-time applications
for unemployment benefits fell to their lowest level in over 48
years last week.
    Overseas, European Central Bank President Mario Draghi
downplayed traders' concerns about recent softness in the euro
zone economy, leaving the door open to end the ECB's 2.55
trillion euro bond purchase program later this year.

    At 10:34 a.m. (1434 GMT), the 10-year Treasury yield
 was down 3.6 basis points at 2.988 percent. It
touched 3.035 percent on Wednesday, which was its highest since
January 2014, Reuters data showed.
    The two-year yield was marginally lower at 2.484
percent after peaking at 2.508 percent the prior day, a level
last seen in September 2008.
    The 30-year yield was down 3.5 basis points at
3.175 percent. It reached a two-month high at 3.219 percent on
    In "when-issued" activity, traders expected the upcoming
seven-year note supply to sell at a yield of
2.941 percent, which would be the highest at a seven-year
auction since April 2010, according to Tradeweb data.
April 26 Thursday 10:35AM EDT/ 1435 GMT
 US T BONDS JUN8               142-13/32    0-21/32    
 10YR TNotes JUN8              119-84/256   0-64/256   
                               Price        Current    Net
                                            Yield %    Change
 Three-month bills             1.8          1.8332     -0.021
 Six-month bills               1.97         2.0173     -0.013
 Two-year note                 99-202/256   2.4837     -0.004
 Three-year note               99-76/256    2.6227     -0.013
 Five-year note                99-180/256   2.8141     -0.026
 Seven-year note               98-12/256    2.9385     -0.033
 10-year note                  97-252/256   2.9884     -0.036
 30-year bond                  96-164/256   3.175      -0.033
   DOLLAR SWAP SPREADS                                 
                               Last (bps)   Net        
 U.S. 2-year dollar swap        26.00        -1.00     
 U.S. 3-year dollar swap        21.75        -0.75     
 U.S. 5-year dollar swap        11.00        -0.50     
 U.S. 10-year dollar swap        3.00         0.25     
 U.S. 30-year dollar swap      -12.50         0.00     

 (Reporting by Richard Leong; Editing by Dan Grebler)
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