* 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 analyst comment, updates prices)
By Gertrude Chavez-Dreyfuss
NEW YORK, May 27 (Reuters) - U.S. Treasury yields advanced
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 selloff 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 selloff ahead of the auction accelerated after news of
Biden's proposed budget for next year.
The budget figure suggested 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.
"That budget is just way too much. How do you even finance
that going forward?" said Tom di Galoma, managing director at
Seaport Global Holdings. "That's what the market is struggling
with and was quite surprised by it."
Thursday's data on U.S. jobless claims and first-quarter
gross domestic product growth rate 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 with 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, unchanged from the estimate
reported last month and following a 4.3% growth rate in the
fourth quarter.
In late 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 3:29PM New York / 1929 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 99-214/256 0.3056 0.003
Five-year note 99-176/256 0.8139 0.016
Seven-year note 99-240/256 1.2594 0.029
10-year note 100-40/256 1.6079 0.034
20-year bond 100-212/256 2.1985 0.028
30-year bond 101-232/256 2.2867 0.027
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 12.00 1.25
spread
U.S. 5-year dollar swap 6.75 -1.00
spread
U.S. 10-year dollar swap -4.00 0.25
spread
U.S. 30-year dollar swap -29.00 0.75
spread (Reporting by Gertrude Chavez-Dreyfuss in New York
Editing by Nick Zieminski and Matthew Lewis)
