×

TREASURIES-Yields rise as traders await debt auctions, Fed meeting

* 2-,3-year yields hit multi-week highs

* Treasury to sell $56 bln in debt this week

* Fed expected to hike rates Wednesday, future signaling uncertain

NEW YORK, June 12 (Reuters) - Short-dated U.S. Treasury yields hit multi-week peaks on Monday ahead of three- and 10-year note auctions, while uncertainty about whether the Federal Reserve will take a hawkish or dovish stance this week limited the move higher in yields. The U.S. Treasury will auction 3-, 10- and 30-year debt totaling $56 billion this week. Traders typically sell Treasuries ahead of auctions to make way for the new supply of government debt, pushing yields higher. U.S. two-year yields touched 1.359 percent, their highest in a month, while three-year yields touched their highest since May 24 at 1.500 percent ahead of three- and 10-year note auctions on Monday. Yields on Treasuries maturing between five and 30 years also hit session highs, but remained below Friday's levels. Investors were cautious ahead of the Fed's two-day meeting beginning on Tuesday, with analysts saying the U.S. central bank could take an aggressively hawkish posture of signaling a balance sheet reduction later this year and another interest rate increase in December. "Wednesdays meeting is pretty much a high-risk event," said Charles Comiskey, head of Treasuries trading at Bank of Nova Scotia in New York. Rates futures prices mirrored Wall Street's consensus that Fed policymakers would raise key overnight borrowing costs by a quarter point to a target range of 1.00 percent to 1.25 percent at the end of the two-day meeting on Wednesday. Prices suggested traders were uncertain about whether the Fed would embark on a third rate increase in 2017, however, and implied traders have not fully priced in the Fed's target range on rates reaching 1.25 percent to 1.50 percent until late 2018.

The Fed could take the hawkish stance of hinting it could taper its balance sheet in September while also hiking rates again in December, said Aaron Kohli, interest rates strategist at BMO Capital Markets in New York. Treasury yields could fall, however, if the Fed takes a more dovish stance of signaling it will taper this year but not hike rates in the second half of 2017, Kohli said. A more dovish stance is seen as possible in part due to recent signs of softening inflation. That uncertainty over Fed policy kept yields from moving even higher on Monday, Kohli said. Benchmark 10-year Treasuries were last down 5/32 in price to yield 2.216 percent, from a yield of 2.199 percent late on Friday. U.S. 30-year yields were at 2.866 percent, up from 2.853 percent late on Friday.

June 12 Monday 10:49 a.m. New York / 1449 GMT Price

US T BONDS SEP7 154 -0-7/32 10YR TNotes SEP7 126-76/256 -0-32/25

6

Price Current Net Yield % Change

(bps)

Three-month bills 0.9925 1.0087 0.003 Six-month bills 1.1075 1.129 0.005 Two-year note 99-204/256 1.355 0.020 Three-year note 100-2/256 1.4971 0.019 Five-year note 99-220/256 1.7797 0.017 Seven-year note 99-220/256 2.0217 0.015 10-year note 101-112/256 2.2127 0.014 30-year bond 102-188/256 2.8633 0.010

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 19.50 -1.25

spread

U.S. 3-year dollar swap 17.50 -1.25

spread

U.S. 5-year dollar swap 7.75 -0.25

spread

U.S. 10-year dollar swap -5.00 -0.25

spread

U.S. 30-year dollar swap -43.25 -0.25

spread

(Reporting by Sam Forgione; Editing by Meredith Mazzilli)