* U.S. 7-year auction shows strong outcome
* U.S. jobless claims fall more than expected
* U.S. Q1 GDP growth rate rises
* NY Fed's reverse repo hits record volume of $485.3 bln
(Adds U.S. 7-year note auction results, analyst comment,
updates prices)
By Gertrude Chavez-Dreyfuss
NEW YORK, May 27 (Reuters) - U.S. Treasury yields rose on
Thursday, bolstered by a New York Times report saying President
Joe Biden will announce on Friday a $6-trillion budget for 2022,
the largest spending since the second world war, fueling supply
concerns.
Yields, though, came off a little bit after another strong
auction of U.S. 7-year notes. Treasury also auctioned 2-year and
5-year notes on Tuesday and Wednesday, yielding robust results
as well.
The 7-year note picked up a yield of 1.285%, compared with a
when-issued or expected rate of 1.294% at the bid deadline,
suggesting investors were willing to receive a lower yield for
the note. The bid-to-cover ratio, another gauge of demand, was
2.41, higher than the 2.26 average analysts said.
Analysts said the 7-year note benefited from a sell-off in
Treasuries that set it up nicely for the auction.
"The initial selloff in Treasuries was attributed to this
morning's budget headlines and the increase in rates left a
solid intraday concession for 7s," said Ben Jeffery, rates
strategist at BMO in a note after the auction.
Investors typically sell Treasuries ahead of a note or bond
sale to push yields higher so they can buy them at a lower price
in a move called supply concession.
The sell-off ahead of the auction accelerated after news of
the proposed Biden's budget for next year.
The budget figure suggested that the U.S. government will be
running deficits of more than $1.3 trillion through the next
decade, according to the report. The report weighed
on Treasury prices because it means the government would have to
flood the market with more debt to finance the budget.
"The supply fear is an easier thing to quickly price in,"
said Steve Feiss, managing director, fixed income, at
broker-dealer Etico Partners.
Thursday's data on U.S. jobless claims and first-quarter
gross domestic product growth also helped lift Treasury yields.
Both reports showed the U.S. economy was on a stable path to
recovery from the pandemic.
Initial jobless claims dropped more than expected last week
to a seasonally adjusted 406,000 for the week ended May 22,
compared to 444,000 the prior week. That was the lowest since
mid-March 2020.
A separate report confirmed U.S. economic growth advanced in
the first quarter at a 6.4% annualized rate, the government's
second estimate for the period, unrevised from the estimate
reported last month and followed a 4.3% growth rate in the
fourth quarter.
In early afternoon trading, the U.S. 10-year Treasury yield
rose to 1.607% from 1.574% late on Wednesday.
U.S. 30-year yields were also up 2.288% from
Wednesday's 2.26%.
Post-auction, U.S. 7-year yields were up at 1.259%
, compared with 1.23% on Wednesday.
In the repurchase market, the Federal Reserve's reverse repo
facility attracted record volume of $485.3 on Thursday. Bigger
banks and other financial institutions have increasingly turned
to the Fed for reverse repos to park excess cash.
May 27 Thursday 2:02PM New York / 1802 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 0.01 0.0101 0.000
Six-month bills 0.03 0.0304 0.000
Two-year note 99-245/256 0.1466 0.000
Three-year note 99-212/256 0.3083 0.005
Five-year note 99-174/256 0.8155 0.018
Seven-year note 99-240/256 1.2594 0.029
10-year note 100-36/256 1.6096 0.036
20-year bond 100-200/256 2.2014 0.031
30-year bond 101-216/256 2.2896 0.030
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 8.00 0.25
spread
U.S. 3-year dollar swap 11.75 1.00
spread
U.S. 5-year dollar swap 6.75 -1.00
spread
U.S. 10-year dollar swap -3.75 0.50
spread
U.S. 30-year dollar swap -29.25 0.50
spread (Reporting by Gertrude Chavez-Dreyfuss; Editing by Emelia
Sithole-Matarise and Nick Zieminski)
