December 27, 2017 / 7:31 PM / 23 days ago

TREASURIES-Year-end portfolio rebalancing boosts bond prices

 (Recasts with price move, adds auction results, quote, updates
prices)
    * Treasury sees weak demand for $34 billion five-year sale
    * Year-end, quarter-end demand boosts prices

    By Karen Brettell
    NEW YORK, Dec 27 (Reuters) - U.S. Treasuries prices gained
on Wednesday as investors rebalanced portfolios before year-end,
though the Treasury Department saw weak demand for a $34 billion
sale of five-year notes.
    The rally was seen as likely prompted by portfolio
rebalancing with no major catalysts to drive market direction. 
    “The buying has been strong since the early morning,” said
Thomas Simons, a money market economist at Jefferies in New
York, noting it is likely “pressure for quarter-end, year-end,
building up.”
    Benchmark 10-year notes             gained 15/32 in price to
yield 2.413 percent, down from 2.237 percent late on Tuesday.
    Trading volumes were thin, however, with many traders and
investors away after Monday's Christmas holiday and before next
Monday's New Year's Day holiday.
    The rally did not extend to the government’s five-year
auction. The ratio of bids to the amount of five-year Treasuries
offered              was 2.36, the lowest reading since June.
            
    It came after the United States also sold $26 billion in
two-year notes on Tuesday to below-average demand. The ratio of
bids to the amount of two-year Treasuries offered             
was 2.52, the lowest reading in a year.             
    The Treasury will also auction $28 billion in seven-year
notes on Thursday, the final sale of $88 billion in
coupon-bearing supply this week.
    Short- and intermediate-dated debt is highly sensitive to
interest rate hikes and the notes have also been under pressure
since October on expectations that the Treasury will increase
supply next year as the Federal Reserve reduces its bond
purchases.
    "The two- to five-year space has been underperforming,
partly on the Fed and the expectations of hikes and partly on
expectations that supply's going to start to increase," said
Gennadiy Goldberg, an interest rate strategist at TD Securities
in New York.
    The Treasury is expected to initially concentrate supply
increases in Treasury bills and short- and intermediate-dated
notes.
    The Fed has indicated that an additional three increases are
likely next year, though interest rate futures traders are
pricing in only two.

 (Editing by Will Dunham and David Gregorio)
  
 
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