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CORRECTED-TREASURIES-U.S. 10-year yields highest since March on China bond holdings fears

holdings fears@ (Corrects seventh graph to show market reaction after auction)

* China may slow or halt U.S. bond purchases -report

* Ten-year yields highest since March

* Treasury sells 10-year notes at highest yield since August

NEW YORK, Jan 10 (Reuters) - U.S. Treasury yields jumped to 10-month highs on Wednesday after Bloomberg News reported that Chinese officials have recommended the country slow or halt its purchases of the U.S. bonds. China is the largest foreign holder of U.S. government debt, with $1.19 trillion in Treasuries as of October 2017, according to the Treasury Department. The Chinese officials, who were not named, said the market for U.S. government bonds is becoming less attractive relative to other assets, Bloomberg said. They also cited trade tensions with the United States as a reason to slow Treasury purchases, the report said. Analysts said the move may be a political signal, rather than a policy-driven choice, citing the difficulties China would have extricating itself from the market and finding new places to invest. The reason that China holds Treasuries doesnt have to do with their tactical trading and profit goals. China owns Treasuries because they export goods to the United States and they get dollars in exchange for those goods and they have to do something with those dollars. As long as China continues to export goods to the U.S. on that basis, theyll need to invest dollars in something, said Guy LeBas, chief income strategist at Janney Montgomery Scott LLC in Philadelphia. The report comes amid increasing nervousness about bond weakness after the Bank of Japan said on Tuesday it will trim its purchases of Japanese government bonds, raising speculation it will reduce its monetary stimulus this year. The 10-year notes pared price losses after the U.S. auctioned $20 billion of reopened 10-year government bonds to strong demand. Indirect bidders were awarded 71.42 percent, the biggest share of 10-year supply since the record high set in August 2016. Direct bidders took 6.5 percent with primary dealers at 22.0 percent. "We suspect that the strength of the auction was primarily fueled by short-covering. Normally these are short-term trades that are bearish signals for the market," said a note by Thomas Simons, a money market economist at Jefferies & Co. in New York. Benchmark 10-year note yields were last down to 2.564 percent, after peaking at 2.597 percent, the highest since March 15. The yield curve between two-year notes and 10-year notes was last flatter at 58.6 basis points, after steepening to 62.4 basis points earlier Wednesday.

January 10 Wednesday 1:49PM New York / 1849 GMT Price

US T BONDS MAR8 149-27/32 -0-12/32 10YR TNotes MAR8 122-236/256 -0-32/25

6

Price Current Net Yield % Change

(bps)

Three-month bills 1.405 1.4296 -0.020 Six-month bills 1.56 1.5942 -0.008 Two-year note 99-206/256 1.9765 0.008 Three-year note 99-186/256 2.0946 0.004 Five-year note 99-4/256 2.3359 0.012 Seven-year note 98-140/256 2.4782 0.017 10-year note 97-80/256 2.5605 0.014 30-year bond 96-240/256 2.904 0.017

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 19.25 -0.25

spread

U.S. 3-year dollar swap 17.75 -1.25

spread

U.S. 5-year dollar swap 4.00 0.00

spread

U.S. 10-year dollar swap -2.00 -0.50

spread

U.S. 30-year dollar swap -21.75 -1.00

spread

(Additional reporting by Sinead Carew; Editing by Chizu Nomiyama and Steve Orlofsky)