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TREASURIES-Yields jump after record 30-year auction sees weak demand

(Recasts with auction, adds quotes, updates prices) By Karen Brettell NEW YORK, Aug 13 (Reuters) – Benchmark U.S. Treasury yields surged to seven-week highs on Thursday after the Treasury sold a record amount of 30-year bonds to weak demand, the final sale of $112 billion in new coupon-bearing supply this week. The Treasury sold $26 billion in bonds, up from $22 billion at its last quarterly refunding in May. The debt sold at a high yield of 1.406%, around three basis points higher than where the debt traded before the sale. Primary dealers took a larger than average share of 28% of the bonds, indicating tepid demand from investors. The bid-to-cover ratio of 2.14 times was the lowest since July 2019. It was “definitely a weaker auction,” said Zach Griffiths, an interest rate strategist at Wells Fargo in Charlotte, North Carolina. “I think this auction today shows there is at least a little bit of market indigestion with all of this new duration.” The Treasury last week increased auction sizes across the curve and said that it plans to continue to shift more of its funding to longer-dated debt in coming quarters as it finances measures to offset the impact of the coronavirus epidemic. There was solid demand for a record $38 billion in 10-year notes on Wednesday and a record $48 billion in three-year notes on Tuesday. Both issues sold off in price before the auctions, which made them more attractive. But a rise in 30-year yields before Thursday’s auction was not enough to lure strong interest. Thirty-year bond yields were last up six basis points at 1.426%, after getting as high as 1.444%, the highest since July 7. They have risen from 1.165% last Thursday, which was the lowest since April 24. Ten-year yields were last at 0.718%, after earlier reaching 0.727%, the highest since June 24. They are up from 0.504% last Thursday, which was the lowest since March 9. The Treasury also said on Thursday that it will sell $25 billion in 20-year bonds on Wednesday, which is a $5 billion increase over its initial offering in May. Data on Thursday showed that the number of Americans seeking unemployment benefits dropped below 1 million last week for the first time since the start of the COVID-19 pandemic in the United States, likely as the expiration of a $600 weekly jobless supplement discouraged some from filing claims. The next major U.S. economic focus is retail sales on Friday. August 13 Thursday 3:00PM New York / 1900 GMT Price US T BONDS SEP0 177-24/32 -1-1/32 10YR TNotes SEP0 138-240/256 -0-64/25 6 Price Current Net Yield % Change (bps) Three-month bills 0.0975 0.0989 -0.007 Six-month bills 0.12 0.1217 0.000 Two-year note 99-236/256 0.1649 0.006 Three-year note 99-198/256 0.2009 0.013 Five-year note 99-168/256 0.3199 0.024 Seven-year note 99 0.5214 0.026 10-year note 99-28/256 0.7175 0.031 20-year bond 98-208/256 1.1926 0.057 30-year bond 95-188/256 1.4264 0.061 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 7.50 0.00 spread U.S. 3-year dollar swap 5.75 -0.25 spread U.S. 5-year dollar swap 4.00 -0.50 spread U.S. 10-year dollar swap -2.50 -1.75 spread U.S. 30-year dollar swap -41.50 -1.25 spread (Reporting by Karen Brettell; editing by Steve Orlofsky and Jonathan Oatis)

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