May 4, 2018 / 7:16 PM / 2 months ago

TREASURIES-Yields flat ahead of debt supply next week

    * U.S. 10-, 30-year yields slide to two-week lows
    * U.S. 2-to-10-year yield curve tightest in two weeks
    * Fed still seen hiking U.S. rates in June, but at gradual
pace
    * Traders look ahead to next week's debt supply

 (Updates prices in text, table)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, May 4 (Reuters) - U.S. Treasury yields were little
changed on Friday after dropping to multiweek lows, supported by
U.S. equity gains as investors believed a weaker-than-expected
jobs report will not deter the Federal Reserve from raising
interest rates at the June meeting.
    Yields on U.S. benchmark 10-year Treasury notes and 30-year
yields earlier slid to two-week lows after the jobs data, while
those on two-year notes fell to a one-week trough.
    Those gains subsequently reversed, except for 30-year bond
yields, which were down on the day, but  came off a two-week
low.
    The Labor Department said U.S. non-farm payrolls grew last
month by 164,000, lower than market expectations for a rise of
192,000 jobs. Average earnings growth, a closely monitored
inflation indicator, grew by just 0.1 percent in April after
rising 0.3 percent the previous month.
    "The data was not great, but I don't think anybody has
changed his mind about what the Fed is going to do. The Fed will
still continue to hike," said Tom Simons, money market economist
at Jefferies in New York.
    "In the stock market, it looks like it has rejected any weak
interpretation of the jobs data and that certainly helps the
risk-on tone in the market," he added.
    Analysts said investors also looked ahead to the Treasury's
May refunding auctions next week, with $73 billion in debt on
offer. 
    On Wednesday, the Treasury department announced a higher
supply of debt issue to offset the impact of a Fed that has been
winding down its purchases. The new debt supply is also intended
to finance a massive fiscal deficit as a result of President
Donald Trump's tax cut scheme and increased spending program. 
    That should ensure rates will remain higher, analysts said.
    "Further concessions next week into the auctions, which
begin Tuesday, could help at the margin, though higher rates
really haven't brought in strong demand for some time now," said
Action Economics in its blog.
    In late afternoon trading, U.S. benchmark 10-year yields
were flat at 2.945 percent from 2.946 percent late
on Thursday.
    U.S. 30-year bonds, meanwhile, fell to 3.114
percent, from Thursday's 3.121 percent.
    U.S. two-year yields though were up at 2.500
percent, from 2.484 percent on Thursday.
    The yield curve flattened again after the jobs report, with
the spread between U.S. 2-year and 10-year notes contracting to
43.90 basis points, the tightest in two weeks.
The spread was last at 44.30 basis points.
    The flattening yield curve is being driven by doubts among
investors that inflation will pick up in the long term.

    Friday, May 4 at 1505 EDT (1905 GMT):
                               Price                  
 US T BONDS JUN8               143-20/32    0-2/32    
 10YR TNotes JUN8              119-176/256  0         
                               Price        Current   Net
                                            Yield     Change
                                            (pct)     (bps)
 Three-month bills             1.8025       1.8355    0.005
 Six-month bills               1.98         2.0273    0.004
 Two-year note                 99-194/256   2.5009    0.017
 Three-year note               99-72/256    2.6304    0.009
 Five-year note                99-218/256   2.782     0.000
 Seven-year note               99-220/256   2.8973    0.000
 10-year note                  98-88/256    2.9459    0.000
 30-year bond                  97-200/256   3.1147    -0.006
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        26.50        -0.25    
 spread                                               
 U.S. 3-year dollar swap        22.00         0.50    
 spread                                               
 U.S. 5-year dollar swap        12.50         0.25    
 spread                                               
 U.S. 10-year dollar swap        3.25         0.25    
 spread                                               
 U.S. 30-year dollar swap      -11.75         0.00    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Dave
Gregorio, Dan Grebler and Cynthia Osterman)
  
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