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TREASURIES-Yields edge higher after soft U.S. 7-year note auction
October 26, 2017 / 7:43 PM / 2 months ago

TREASURIES-Yields edge higher after soft U.S. 7-year note auction

    * U.S. 7-year note auction shows weak demand
    * ECB extends asset buys, weighed on U.S. yields earlier
    * Fed chair uncertainty muddles market outlook

 (Updates prices, table, adds new analyst comment, U.S. auction
results)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Oct 26 (Reuters) - U.S. Treasury yields inched
higher on Thursday in choppy trading, undermined by a soft
auction of U.S. 7-year notes which saw demand at its weakest
since August last year.
    "We're a little bit lower because the 7-year auction didn't
go particularly well," said Lou Brien, market strategist, at DRW
Trading in Chicago.
    The U.S. 7-year note was sold at 2.280 percent, higher than
the expected yield at the bid deadline. The yield was the
highest seen at an auction for this debt maturity since January.
    There were $66.9 billion bids for a 2.39 bid-to-cover ratio,
the lowest since August 2016. The ratio was also well below last
month's 2.70 and the 2.56 average. Indirect bidders, which
include financial institutions such as foreign central banks,
took 63.4 percent, the lowest since May. The indirect takedown
was also lower than the previous auction's 70.6 percent and the
69.1 percent average.
    The weak seven-year note sale followed similarly soft
five-year note and two-year note auctions the previous sessions.
    Yields, which move inversely to prices, fell earlier in the
session as they tracked the euro zone bond market, after the
European Central Bank extended its stimulus program until at
least September next year but at a diminished pace. 
    The ECB said it would cut its bond purchases in half to 30
billion euros a month from January, but hedged its bets by
stretching asset buys by nine months given persistently low
inflation.     
    A report from Politico, meanwhile, saying that current
Federal Reserve Chair Janet Yellen was out of the running for
the top U.S. central bank job briefly nudged rates higher. But a
White House official told Reuters: "No final decision has been
made."
    The other two contenders for the Fed job are Stanford
University economist John Taylor, and current Fed Governor
Jerome Powell. Both are viewed as more hawkish than Yellen.
    "There's no real direction in the market," Brien said.
"There's a lot of things that are just being anticipated rather
than actually happening, such as the tax plans and speculation
about the Fed chair."
    In late trading, 10-year U.S. Treasury note yields were at
2.453 percent, up from Wednesday's 2.444 percent.
Ten-year yields hit a seven-month peak on Wednesday.
    U.S. 30-year bond yields were up at 2.959 percent, from
2.955 percent the previous session. Thirty-year yields had risen
to a five-month high on Wednesday.
    Following the auction, U.S. 7-year note yields were at 2.296
percent, up from Wednesday's 2.282 percent.
    
      October 26 Thursday 3:29PM New York / 1929 GMT
                               Price                  
 US T BONDS DEC7               150-23/32    -0-6/32   
 10YR TNotes DEC7              124-88/256   -0-28/25  
                                            6         
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.09         1.1082    -0.003
 Six-month bills               1.2525       1.2779    0.005
 Two-year note                 99-196/256   1.6189    0.012
 Three-year note               99-162/256   1.7525    0.017
 Five-year note                99-166/256   2.0744    0.009
 Seven-year note               98-232/256   2.2966    0.015
 10-year note                  98-56/256    2.4554    0.011
 30-year bond                  95-216/256   2.9608    0.006
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        22.25        -0.50    
 spread                                               
 U.S. 3-year dollar swap        22.00        -0.50    
 spread                                               
 U.S. 5-year dollar swap         7.25        -0.25    
 spread                                               
 U.S. 10-year dollar swap       -3.00        -0.50    
 spread                                               
 U.S. 30-year dollar swap      -29.50        -0.25    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Andrea Ricci
and Diane Craft)
  

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