* Record $26 bln 10-year auction fetches solid demand
* U.S. to end refunding with record $18 bln 30-year sale
* Fed's Barkin says U.S. rates need to rise further
(Repeats to additional subscribers) NEW YORK, Aug 8 (Reuters) - U.S. Treasury yields held firm on Wednesday as investors bought a hefty chunk of the record $26 billion sale of 10-year notes, the second leg of this week's $78 billion in quarterly refunding. Expectations of more interest rate increases from the Federal Reserve spurred investor demand at the 10-year auction, analysts said. They also cited U.S. economic fundamentals and lower bond yields in other parts of the world . The 10-year sale followed mediocre demand for $34 billion in three-year debt on Tuesday. The U.S. Treasury will complete its refunding with a record $18 billion in 30-year bonds at 1 p.m. (1700 GMT) on Thursday. "I think there is still good demand out there for U.S. government debt even with expectations that more supply is still to come," said Andrew Richman, director of fixed income at SunTrust Advisory Services in Jupiter, Florida. "It should go well for the 30-year (auction) tomorrow." Demand for the 10-year auction was firmer than expected. Indirect bidders which include fund managers and foreign central banks bought 61.27 percent of supply, smaller than the prior 10-year auction in July but in line with the recent average.
The ratio of bids to the amount of 10-year note offered edged down to 2.55, the lowest reading since April. A new 10-year issue again failed to produce at least a 3 percent coupon rate, a level last seen in July 2010. On the open market, the benchmark 10-year Treasury yield was 2.971 percent, marginally lower on the day. It touched a session low of 2.958 percent shortly after the auction. Washington's trade war with China could hurt economic growth, which would pressure longer-dated Treasury yields, analysts said. Beijing said it was imposing additional tariffs of 25 percent on $16 billion worth of U.S.-made imports. Richmond Federal Reserve President Thomas Barkin acknowledged growing concerns over tariffs, but said U.S. economic growth still warranted further increases in short-term rates. Interest rates futures implied traders saw a 96 percent chance the U.S. central bank would raise overnight bank borrowing costs by a quarter point to 2.00-2.25 percent at its Sept. 25-26 policy meeting, CME Group's FedWatch program showed. This would mark the Fed's third rate increase in 2018.
Wednesday, Aug. 8, at 1511 EDT (1911 GMT): Price
US T BONDS SEP8 142-20/32 1/32 10YR TNotes SEP8 119-128/256 1/32 Price Current Net Yield Change (pct) (bps) Three-month bills 2.015 2.0534 -0.003 Six-month bills 2.18 2.2349 0.000 Two-year note 99-232/256 2.6738 0.000 Three-year note 99-242/256 2.7691 -0.002 Five-year note 99-152/256 2.838 -0.003 Seven-year note 99-184/256 2.9198 -0.004 10-year note 99-48/256 2.9711 -0.002 30-year bond 100-36/256 3.1176 0.000 YIELD CURVE Last (bps) Net
10-year vs 2-year yield 29.50 -0.40 30-year vs 5-year yield 27.90 0.40
DOLLAR SWAP SPREADS
Last (bps) Net
U.S. 2-year dollar swap 19.50 -1.00
U.S. 3-year dollar swap 16.50 -1.50
U.S. 5-year dollar swap 12.75 -0.50
U.S. 10-year dollar swap 5.00 -0.75
U.S. 30-year dollar swap -7.25 -1.00
(Reporting by Richard Leong; editing by Jonathan Oatis and David Gregorio)