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TREASURIES-U.S. yields spike up after dismal 10-year note sale

Richard Leong

* U.S. sells $27 bln 10-year notes to poor demand

* Longer-dated Treasury yields hit 5-week lows before rising

* Corporate supply led by IBM adds upward pressure on yields

* U.S. plans higher tariffs on $200 bln of Chinese imports

(Updates market action, adds quote) NEW YORK, May 8 (Reuters) - U.S. Treasury yields rose on Wednesday, reversing an earlier drop due to trade worries, as traders sold their bond holdings in the wake of a poor 10-year note auction and competing supply from the corporate bond market. Earlier Wednesday, longer-dated yields fell to a five-week lows as investors had piled money into low-risk government debt amid an escalating trade battle between economic giants China and the United States. The pickup in safe-haven demand for Treasuries had stoked expectations for solid bidding for $27 billion of new 10-year supply, the second leg of this week's $84 billion quarterly government refunding, analysts said. Those bids did not materialize, resulting in a "terrible" 10-year auction, said DRW Trading market strategist Lou Brien. "The weakness in the bidding might boil down to the fact that it has just come too far, too fast, and there isnt a lot of further upside at this yield," Tom Simons, senior money market strategist at Jefferies LLC, wrote in a research note. The ratio of bids to the amount of 10-year notes offered was 2.17, the lowest reading on this measure of overall auction demand since March 2008. The Treasury will complete this week's refunding, which would raise $28.6 billion in fresh cash for the federal government, with a $19 billion 30-year bond auction on Thursday. In the credit sector, IBM is expected to sell about $20 billion in debt to help fund its acquisition of software company Red Hat, according to IFR. At 1:47 p.m. (1747 GMT), the yields on benchmark 10-year Treasury notes were up 3.6 basis points at 2.484% after hitting a five-week low of 2.426% earlier in the session. The United States said it will raise tariffs on $200 billion worth of Chinese imports to 25% from 10% effective Friday, with Chinese Vice Premier Liu He due to arrive in Washington for two days of trade talks. U.S. officials have accused China of reneging over the past week on substantial commitments made during months of negotiations aimed at ending their trade war. The abrupt deterioration in relations between the world's two largest economies and reduced prospects for a trade deal have rattled investor confidence about prospects for the global economy and business activities. Wall Street's major equity indexes opened lower before rebounding amid uncertainty over the upcoming round of U.S-China trade talks. Treasury yields retraced their initial lows after U.S. President Donald Trump said on Twitter China was "now coming to the U.S. to make a deal." May 8 Wednesday 1:57PM New York / 1757 GMT Price

US T BONDS JUN9 148-7/32 -17/3210YR TNotes JUN9 123-192/256 -9/32Price Current NetYield % Change

(bps)

Three-month bills 2.38 2.4277 -0.004Six-month bills 2.38 2.4424 -0.002Two-year note 99-236/256 2.2905 0.008Three-year note 99-160/256 2.255 0.017Five-year note 99-214/256 2.285 0.033Seven-year note 99-248/256 2.3798 0.03410-year note 101-56/256 2.4835 0.03630-year bond 102-56/256 2.8883 0.026YIELD CURVE Last (bps) Net

Change (bps)

10-year vs 2-year yield 19.10 2.3030-year vs 5-year yield 60.20 -0.15

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 10.25 0.50

spread

U.S. 3-year dollar swap 7.25 0.75

spread

U.S. 5-year dollar swap 3.50 0.00

spread

U.S. 10-year dollar swap -2.50 -0.25

spread

U.S. 30-year dollar swap -25.25 0.00

spread

(Reporting by Richard Leong Editing by Bernadette Baum)