Wires

TREASURIES-U.S. yields fall in choppy trading ahead of debt supply

Gertrude Chavez-Dreyfuss

NEW YORK, Sept 24 (Reuters) - Yields on long-dated U.S. Treasury debt fell for a seventh straight session on Tuesday in choppy trading, with investors caught between two competing forces: heavy supply this week and upcoming month-end and quarter-end portfolio rebalancing. The decline in yields came after a recent rise that took benchmark U.S. 10-year yields to a five-week high near 2.0%. U.S. yields extended their decline after data showed a drop in consumer confidence in September. Investors are also bracing for heavy government debt supply this week totaling $113 billion. The Treasury will sell $40 billion in U.S. two-year notes later on Tuesday. Market participants typically sell Treasuries going into an auction to get a higher yield. At the same time, month-end and quarter-end rebalancing is looming this week, which generally spurs buying. Money managers who benchmark their bond portfolios to indexes have to align their positions when new bonds are worked into those benchmarks at the close of each month. "Trading has been really choppy and kind of directionless," said Tom Simons, economist at Jefferies in New York. "We have two competing forces here for the market this week: the two-year auction today; but we will also have the quarter-end and month-end coming at the end of the week too." U.S. 10-year note yields fell to 1.669% from 1.708% late on Monday. Yields on 30-year bonds were also lower at 2.116%, from 2.153% on Monday. Jefferies' Simons also said volatility in the overnight repurchase market may have contributed to some buying. The New York Federal Reserve on Tuesday awarded $75.0 billion in bids from primary dealers at an overnight repurchase agreement (repo) operation. It also accepted $30 billion in 14-day term repos. "We still have some repo volatility even though the Fed has sort of stabilized it here, but there's still a risk," Simons said. Yields fell further after the Conference Board said September's U.S. consumer confidence slid to 125.1, lower than market expectations of a reading of 133.5, as well as August's revised number at 135.1. U.S. 2-year yields were down at 1.650%, from Monday's 1.669%. BMO Capital Markets said Tuesday's 2-year auction should go well, similar to the note's sale last month. "Even though yields have fallen from the local peaks achieved a few weeks ago, the bid has stabilized, and rates are consolidating well off the low extremes set at the beginning of the month," BMO said in a research note. "This has translated to a substantial cheapening in 2s... and are at levels which will attract demand."

September 24 Tuesday 10:19AM New York / 1419 GMT

Price Current NetYield % Change

(bps)

Three-month bills 1.905 1.9462 0.000Six-month bills 1.8725 1.922 0.005Two-year note 99-183/256 1.6505 -0.018Three-year note 99-204/256 1.5701 -0.030Five-year note 98-146/256 1.5522 -0.030Seven-year note 98-110/256 1.6153 -0.03410-year note 99-140/256 1.6748 -0.03330-year bond 102-208/256 2.1224 -0.031

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap -2.00 -1.00

spread

U.S. 3-year dollar swap -3.00 -0.25

spread

U.S. 5-year dollar swap -6.50 -0.75

spread

U.S. 10-year dollar swap -12.75 -0.50

spread

U.S. 30-year dollar swap -43.00 -0.50

spread

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Dan Grebler)