February 20, 2018 / 3:56 PM / 6 months ago

TREASURIES-U.S. Treasury yields rise ahead of supply wave

    * U.S. to sell record amounts of 3-month, 6-month bills
    * U.S. to auction $55 bln 1-month bills, $28 bln 2-year

    By Richard Leong
    NEW YORK, Feb 20 (Reuters) - U.S. Treasury yields rose on
Tuesday with the benchmark 10-year yield hovering near a
four-year peak as investors made room for this week's deluge of
$258 billion of government debt supply.
    The Treasury Department has ramped up its borrowing on the
open market in anticipation of a higher deficit from last year's
major tax overhaul and a two-year budget deal that will increase
federal spending over the next two years.
    The government is also relying more on private investors to
buy its debt as the Federal Reserve has pared its Treasury
purchases in a bid to shrink its $4.4 trillion balance sheet.
    Analysts expect decent demand for Tuesday's wave of supply
in the wake of a recent market sell-off.
    "That's what's priced in, and mainly considers the impact of
last year's passed tax cuts and this year's passed increase in
spending caps," said Guy LeBas, chief fixed income strategist at
Janney Montgomery Scott in Philadelphia.
    At 11:30 a.m. (1630 GMT), the Treasury will sell $51 billion
in three-month bills and $45 billion in six-month
bills. Both offerings are the biggest ever for
these T-bill maturities.
    At 1 p.m. (1800 GMT). it will auction $55 billion in
one-month bills and $28 billion in two-year
fixed-rate notes.
    T-bill and two-year yields are near their highest levels in
more than nine years.
    In light of the recent market volatility, some investors may
be drawn to these short-dated Treasuries as safe havens,
analysts said.
    Still, concerns about more rate hikes from the Fed and the
possibility of further increases in federal borrowing may keep a
lid on demand at these auctions, they said. 
    "I suspect, however, that when the next economic downturn
eventually comes, tax receipts fall, and the deficit widens that
Treasury spreads will widen further," LeBas said.
    At 10:50 a.m. (1550 GMT), the 10-year Treasury yield
 was 2.902 percent, up 2.5 basis points from late on
Friday. It reached 2.944 percent last week, a four-year peak.
    The two-year yield was 2.223 percent, 3.4 basis
points higher than late Friday.
    U.S. financial markets were closed on Monday for the
Presidents Day holiday.
February 20 Tuesday 10:48AM New York / 1548 GMT
 US T BONDS MAR8               143-29/32    -10/32    
 10YR TNotes MAR8              120-96/256   -7/32     
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.585        1.6131    0.005
 Six-month bills               1.81         1.8515    0.021
 Two-year note                 99-148/256   2.2229    0.034
 Three-year note               99-134/256   2.4165    0.031
 Five-year note                98-174/256   2.6617    0.036
 Seven-year note               97-232/256   2.8342    0.030
 10-year note                  98-176/256   2.9023    0.025
 30-year bond                  97-4/256     3.1546    0.020
         YIELD CURVE           Last (bps)   Net       
 10-year vs 2-year yield       67.80        -0.40     
 30-year vs 5-year yield       49.10        -0.95     
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        26.50         0.00    
 U.S. 3-year dollar swap        21.00         0.25    
 U.S. 5-year dollar swap         9.75         0.00    
 U.S. 10-year dollar swap        1.25        -0.25    
 U.S. 30-year dollar swap      -16.50        -1.00    

 (Editing by David Gregorio and Jonathan Oatis)
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