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TREASURIES-Yields pare gains after strong demand for record 10-year auction

 (New throughout, updates prices, market activity and comments;
adds auction)
    By Karen Brettell
    NEW YORK, Aug 12 (Reuters) - U.S. Treasury yields dipped
from one-month highs on Wednesday after the Treasury saw good
demand for a record $38 billion auction of 10-year notes, but
they remained higher on the day ahead of a 30-year bond auction
on Thursday.
    The 10-year notes sold with a high yield of 0.677%, less
than a basis point lower than where they had traded before the
sale. Indirect bidders, which includes fund managers and other
investors, bought 65% of the notes, a larger share than average.

    The auction “went off without a hitch,” said Justin Lederer,
an interest rate strategist at Cantor Fitzgerald in New York.
    The Treasury last week increased auction sizes across the
curve and said that it plans to continue to keep shifting more
funding to longer-dated debt as it finances measures to offset
the impact of the coronavirus epidemic.
    "This whole week we're dealing with supply coming into the
market," said Tom Simons, a money market economist at Jefferies
in New York.
    Benchmark 10-year note yields were last up one
basis point at 0.670%, after getting as high as 0.691% before
the auction, the highest since July 7.
    Analysts said Treasuries remain attractive as they pay
higher yields than comparable overseas debt, and as concerns
over renewed economic weakness fuels strong demand for
safe-haven debt.
    The Federal Reserve has also committed to years of
rock-bottom rates and is holding yields down through bond
purchases.
    “If you look at us, (to) international buyers we’re 'cheap'
on a relative basis, and every backup has been met by demand,”
Lederer said. “I don’t think the market is ready to really
justify significantly higher rates.”
    The Treasury will sell $26 billion in 30-year bonds on
Thursday, which is a record large size for that tenor.
    A record $48 billion sale of three-year notes on Tuesday
also drew solid demand.
    Yields rose earlier on Wednesday after data showed that U.S.
consumer prices rose more than expected in July, with a measure
of underlying inflation increasing by the most in 29-1/2 years.

    "This is a pretty surprising report," Simons said. However,
"year-over-year, you still see pretty weak readings. You have to
look at the overall economy and how much slack there is," Simons
added.
    Treasuries have also weakened this week as risk appetite
improved. The S&P 500 jumped on Wednesday, putting it just
points away from its record closing high.
    
      August 12 Wednesday 3:00PM New York / 1900 GMT
                               Price                  
 US T BONDS SEP0               178-26/32    -0-10/32  
 10YR TNotes SEP0              139-48/256   -0-16/25  
                                            6         
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.105        0.1065    -0.006
 Six-month bills               0.12         0.1217    -0.002
 Two-year note                 99-239/256   0.1589    -0.002
 Three-year note               99-208/256   0.1878    -0.001
 Five-year note                99-198/256   0.296     0.006
 Seven-year note               99-48/256    0.4938    0.007
 10-year note                  99-148/256   0.6697    0.012
 20-year bond                  99-204/256   1.1365    0.018
 30-year bond                  97-52/256    1.3647    0.018
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         7.50        -0.25    
 spread                                               
 U.S. 3-year dollar swap         6.25        -0.25    
 spread                                               
 U.S. 5-year dollar swap         4.50        -1.00    
 spread                                               
 U.S. 10-year dollar swap       -0.75        -0.75    
 spread                                               
 U.S. 30-year dollar swap      -40.50        -0.75    
 spread (Reporting by Karen Brettell; Editing by Will Dunham and David
Gregorio)
  
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