TREASURIES-Yields edge higher before Fed minutes, 20-year auction

       By Karen Brettell
    NEW YORK, Aug 18 (Reuters) - U.S. Treasury yields edged
higher on Wednesday as investors waited on minutes from the
Federal Reserve's July meeting for any new indications on when
the U.S. central bank is likely to begin paring bond purchases.
    Fed Chair Jerome Powell has said that he wants to see
further improvement in employment before tightening policy, even
as other Fed members worry that recent increases in inflation
may be more than transitory.
    "The key thing that we will be watching is for any updated
timeline with respect to the taper outlook," said Zachary
Griffiths, an interest rate strategist at Wells Fargo in
Charlotte, adding that he sees the Fed as unlikely to announce a
policy change until December.
    "The other thing we're watching for is the Fed's assessment
of inflation ... any indication there that committee members are
becoming uneasy and perhaps faltering in the transitory
narrative we think would be taken very hawkishly," Griffiths
added.
    Data on Wednesday showed that U.S. homebuilding fell more
than expected in July, the latest indication that surging
construction costs and home prices continued to constrain the
housing market early in the third quarter.
    Benchmark 10-year notes rose one basis point to
1.27%. The yield curve between two-year and 10-year notes
 steepened one basis point to 106 basis points.
    Investors will be looking to see if the Fed expresses
concern about new COVID-19 variants including Delta. New
Zealand's central bank delayed raising rates on Wednesday as
policymakers quickly shifted gears after the country was put
into a snap COVID-19 lockdown over a handful of new cases.

    Powell is also due to speak at the Fed's annual economic
symposium next week in Jackson Hole, Wyoming.
    Demand for longer-dated debt will be tested on Wednesday
when the Treasury sells $27 billion in 20-year bonds. Analysts
at JPMorgan said that relatively low yields and low liquidity
with many investors out for August summer holidays could reduce
demand for the bonds.
    "Though the 20-year sector appears somewhat cheap along the
curve, Treasury yields still appear too low versus fundamentals,
and liquidity is impaired: thus we think tomorrow's auction will
require above-average end-user demand to be digested smoothly,"
the analysts said in a report sent late on Tuesday.
    The Treasury will also sell $8 billion in 30-year Treasury
Inflation-Protected Securities (TIPS) on Thursday.

      August 18 Wednesday 9:33AM New York / 1333 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.065        0.0659    -0.008
 Six-month bills               0.05         0.0507    -0.002
 Two-year note                 99-212/256   0.2135    -0.002
 Three-year note               99-218/256   0.425     0.000
 Five-year note                99-80/256    0.7668    0.003
 Seven-year note               99-176/256   1.0467    0.007
 10-year note                  99-208/256   1.27      0.012
 20-year bond                  107-8/256    1.8241    0.012
 30-year bond                  101-164/256  1.9277    0.009

   DOLLAR SWAP SPREADS
                               Last (bps)   Net
                                            Change
                                            (bps)
 U.S. 2-year dollar swap         9.75         0.50
 spread
 U.S. 3-year dollar swap        10.75         0.50
 spread
 U.S. 5-year dollar swap         8.25         0.25
 spread
 U.S. 10-year dollar swap        1.00         0.25
 spread
 U.S. 30-year dollar swap      -29.25         0.50
 spread


 (Reporting by Karen Brettell; Editing by Will Dunham)

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