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TREASURIES-Yields rise, tepid demand for 10-year auction

·3 min read

(Recasts with auction results, adds quotes, updates prices) By Karen Brettell NEW YORK, June 8 (Reuters) - Treasury yields rose on Wednesday after the U.S. Treasury Department saw tepid demand for a sale of 10-year notes, and as investors waited on highly anticipated inflation data on Friday. The government sold $33 billion in 10-year notes at a high yield of 3.030%, around a basis point above where they had traded before the auction. The notes saw 2.41 times the amount of bids to debt on offer, the lowest since November. The auction saw "a distinct lack of enthusiasm," Jim Vogel, an interest rate strategist at FHN Financial, said in a report. The Treasury also saw soft demand for a $44 billion sale of three-year notes on Tuesday and will sell $19 billion in 30-year bonds on Thursday. Benchmark 10-year yields gained 6 basis points to 3.029%. Two-year yields rose 4 basis points to 2.774%. Yields had moved higher earlier on Wednesday after euro zone gross domestic product beat expectations, adding to bets of a more hawkish European Central Bank. The euro zone economy grew much faster in the first quarter of the year than in the previous three months despite the impact of the war in Ukraine, the European Union statistics office said on Wednesday, revising its earlier estimates sharply higher. Government bond yields have increased as central banks globally get more hawkish about tightening monetary policy in an effort to curb soaring inflation. The ECB's meeting on Thursday will be evaluated for whether a 25-basis-point or 50-basis-point rate increase is likely in July. Money markets are now pricing in 75 basis points of hikes by the bank by September. The next major U.S. release to offer further inflation clues will be Friday’s consumer price data, which is expected to show that price pressures remained elevated in May, though core consumer prices, which exclude the volatile food and energy sectors, likely ticked down on an annual basis. "It's going to come down to the tone the ECB strikes tomorrow and then what happens with US CPI on Friday as far as where yields go from here," said Zachary Griffiths, a rate strategist at Wells Fargo. The core consumer price index (CPI) is expected to have gained 5.9% on the year, after an annual rise of 6.2% in April, according to the median estimate of economists polled by Reuters. The U.S. Federal Reserve is expected to raise rates by 50 basis points at its June meeting next week and again in July, with a similar move also likely in September. Analysts are debating, however, whether the U.S. central bank could pivot to a less aggressive stance after July if the economy shows signs of weakening and inflation eases. June 8 Wednesday 3:00PM New York / 1900 GMT Price Current Net Yield % Change (bps) Three-month bills 1.2425 1.2637 0.008 Six-month bills 1.73 1.7695 0.026 Two-year note 99-122/256 2.7739 0.039 Three-year note 99-194/256 2.96 0.033 Five-year note 98-34/256 3.032 0.050 Seven-year note 98-16/256 3.0605 0.050 10-year note 98-176/256 3.0289 0.059 20-year bond 97-208/256 3.4019 0.057 30-year bond 94-48/256 3.1773 0.055 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 34.50 -0.75 spread U.S. 3-year dollar swap 17.00 -1.25 spread U.S. 5-year dollar swap 4.75 -0.50 spread U.S. 10-year dollar swap 7.00 -0.75 spread U.S. 30-year dollar swap -22.25 -1.00 spread (Reporting by Karen Brettell; editing by Jonathan Oatis)