May 7, 2020 / 2:27 PM / 22 days ago

TREASURIES-Yields near three-week highs as investors weigh supply vs Fed purchases

    By Karen Brettell
    NEW YORK, May 7 (Reuters) - U.S. Treasury yields held just
below three-week highs on Thursday as investors continued to
weigh the impact of the Treasury Department increasing its
supply of longer-dated debt against continuing Federal Reserve
bond purchases.
    Long-dated yields jumped and the yield curve steepened on
Wednesday after Treasury said it would launch a long-planned
20-year bond and increase auction sizes across a range of
maturities at a faster pace than expected.
    It was “a lot more longer-dated issuance than we were
expecting, and I think that’s why you got the move that we got
yesterday in terms of a steeper yield curve,” said Michael
Pugliese, an economist at Wells Fargo in New York.
    That said, “today we’re maybe 10 basis points higher than we
were on Monday, which is not nothing, but it’s not like we saw a
couple of hundred basis point move, so the market was able to
digest it,” Pugliese said.
    Benchmark 10-year yields fell 2 basis points on
the day to 0.6932%, after reaching 0.7430% on Wednesday, the
highest since April 15.
    The 10-year yields have held in a tight range since the
beginning of April of between 0.543% and 0.785%.
    Treasury said on Monday it expects to borrow $2.999 trillion
during the April-June quarter, five times larger than the
previous single-quarter record set during the 2008 financial
crisis as it implements measures meant to blunt the economic
damage of the new coronavirus.
    It has concentrated the bulk of its increased issuance in
short-term Treasury bills, though analysts have said that it
will need to increase longer-dated maturities over time.
    But ongoing Federal Reserve bond purchases are seen as
capping yield increases even as supply swells. 
    The Fed said on Wednesday that it will include the new
20-year debt in its bond purchase program.
    Bonds were little changed after data on Thursday showed that
millions more Americans sought unemployment benefits last week,
suggesting layoffs broadened from consumer-facing industries to
other segments of the economy and could remain elevated even as
many parts of the country start to reopen.
    Investors are next focused on the jobs report for April on
Friday, which is expected to show unprecedented job losses after
businesses closed to stem the spread of the coronavirus.
    “That will be interesting because it will give us some more
granular detail that we just don’t have at the moment - industry
data, data on who thinks this is a temporary layoff versus a
permanent layoff” and other details, said Pugliese.
    May 7 Thursday 9:59AM New York / 1359 GMT
 US T BONDS JUN0               179-14/32    0-23/32   
 10YR TNotes JUN0              138-192/256  0-52/256  
                               Price        Current   Net Change
                                            Yield %   (bps)
 Three-month bills             0.1125       0.1144    -0.005
 Six-month bills               0.1425       0.145     0.000
 Two-year note                 99-230/256   0.1765    -0.006
 Three-year note               100-10/256   0.2366    -0.010
 Five-year note                100-22/256   0.3576    -0.019
 Seven-year note               99-166/256   0.5514    -0.022
 10-year note                  107-156/256  0.6932    -0.020
 30-year bond                  114-160/256  1.3978    -0.015
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        10.50        -0.75    
 U.S. 3-year dollar swap         5.50        -0.25    
 U.S. 5-year dollar swap         2.25        -0.25    
 U.S. 10-year dollar swap       -4.25         0.00    
 U.S. 30-year dollar swap      -51.00        -0.25    

 (Editing by Nick Zieminski)
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