US bond yields little changed before 7-year note sale

NEW YORK: US Treasury yields were little changed on Thursday, with the yield curve hovering at its flattest levels in more than a week, as investors reduced some bond holdings to make room for $31 billion of seven-year government note supply.

Bond yields climbed modestly in the wake of data that reinforced a view of solid economic growth. They had fallen earlier Thursday on safe-haven demand tied to worries about the Italian government's struggle to reach a budget deal.

A government report showed gross domestic product grew at a 4.2 percent clip in the second quarter, the fastest in nearly four years. Another report stated durable goods rose 4.5 percent in August, rebounding from a revised 1.2 percent drop the month before.

Other government data released on Thursday signaled a wider deficit in goods trade in August and a slight pickup in jobless claims last week.

The latest spate of economic figures generally supported the outlook from the Federal Reserve, which, as expected, raised key short-term interest rates for a third time in 2018 on Wednesday.

Central bank policy-makers hinted they would raise overnight borrowing costs further into 2020, with the next increase possibly at their Dec. 18-19 meeting.

"They are moving just as planned," said Sean Simko, head of global fixed income management at SEI in Oaks, Pennsylvania. "The economy is going well and inflation is contained."

At 10:12 a.m. (1412 GMT), benchmark 10-year Treasury yield was down 0.2 basis point at 3.059 percent. On Tuesday, it reached 3.113 percent, its highest since May, Reuters data showed.

The 30-year yield edged up 0.2 basis point to 3.193 percent after hitting a four-month peak of 3.249 percent on Tuesday.

Two-year yields gained 0.4 basis point to 2.831 percent after touching 2.847 percent on Tuesday, which was last seen in June 2008.

The spread between two-year and 10-year yields narrowed to 22.8 basis points after hitting 21.8 basis points earlier Thursday, the tightest level in over a week.

In "when-issued" activity, traders expected the latest seven-year Treasuries supply to sell at a yield of 3.026 percent, which would be the highest yield at an auction since April 2010.

Earlier this week, sales of two-year and five-year Treasuries fetched poor demand amid investor caution before the Fed's latest rate increase.