US yields steady on solid demand for record 10-year supply

NEW YORK: US 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 US 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 US 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 US 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 US-made imports.

Richmond Federal Reserve President Thomas Barkin acknowledged growing concerns over tariffs, but said US economic growth still warranted further increases in short-term rates.

Interest rates futures implied traders saw a 96 percent chance the US 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.