TREASURIES-U.S. yields decline after strong 10-year auction, Beige Book

    (Updates prices, adds auction results, Williams comments, Beige
Book)
    By Chuck Mikolajczak
    NEW YORK, Sept 8 (Reuters) - Longer-dated U.S. government
bond yields fell on Wednesday and touched a session low after a
strong auction by the Treasury of 10-year notes and the Fed's
Beige Book of economic activity.
    Yields had climbed for two straight days in the wake of
Friday's government payrolls report, which fell well short of
expectations, but underlying measures such as wage growth were
fairly strong and investors viewed the report as unlikely to
derail the U.S. Federal Reserve in starting to taper its bond
purchases by year-end.
    Labor market data on Wednesday showed job openings in the
U.S. rose to 10.934 million in July, up from the revised 10.185
million in the prior month.
    Yields on the benchmark 10-year note fell further after a
strong auction of $38 billion by the Treasury.
    "It did go off quite well, last month's was stellar and
today's was just shy of that," said Kim Rupert, managing
director of global fixed income analysis at Action Economics in
San Francisco.
    "There has been ongoing fears that maybe demand for
Treasuries is going to dry up, we've heard that for a long time
and we continue to see strong results."
    The yield on 10-year Treasury notes was down 3.9
basis points to 1.333%.
    Treasury will also offer $24 billion in 30-year bonds on
Thursday. Analysts at Wells Fargo note that yields of both the
10-year and 30-year have tended to fall on 30-year auction days
over the past year.
    The yield on the 30-year Treasury bond was down
3.6 basis points to 1.950%.
    New York Fed President John Williams said on Wednesday that
if the U.S. economy continues to improve, it may be
"appropriate" for the central bank to start pulling back on the
rate of its asset purchases this year.
    But the Fed's Beige Book of anecdotal economic conditions
said the economy "downshifted slightly" in August as concerns
mounted over how rising coronavirus cases would impact the
economic recovery, and the 10-year subsequently touched a
session low of 1.327%.
    Congressional debate is expected to heat up in the coming
weeks over the debt ceiling issue with Treasury due to run out
of money sometime in October. Without an extension to Treasury's
borrowing limits, the risk of a technical default will weigh on
short-term debt.
    A $30 billion 8-week auction, also on Thursday, is expected
to more likely reflect the risk the market sees around the
possible expiration of the U.S. debt ceiling.
    On Wednesday, U.S. Treasury Secretary Janet Yellen again
pressed Congress to address the limit on U.S. government
borrowing, saying the "most likely outcome is that cash and
extraordinary measures will be exhausted during the month of
October."
    U.S. House Speaker Nancy Pelosi said Democrats will not
include a provision to raise the debt ceiling in a $3.5 trillion
"reconciliation" spending measure they aim to pass in the coming
months.
    A closely watched part of the U.S. Treasury yield curve
measuring the gap between yields on two- and 10-year Treasury
notes, seen as an indicator of economic
expectations, was at 111.3 basis points after steepening to a
near two-month high of 116.4 on Tuesday.
    The two-year U.S. Treasury yield, which typically
moves in step with interest rate expectations, was down 0.4
basis points at 0.218%.


      September 8 Wednesday 2:33PM New York / 1833 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.045        0.0456    0.000
 Six-month bills               0.0525       0.0532    0.002
 Two-year note                 99-209/256   0.2182    -0.004
 Three-year note               99-206/256   0.4406    -0.012
 Five-year note                99-188/256   0.8046    -0.016
 Seven-year note               100-28/256   1.1086    -0.029
 10-year note                  99-60/256    1.3325    -0.039
 20-year bond                  98           1.8706    -0.036
 30-year bond                  101-36/256   1.9495    -0.036

   DOLLAR SWAP SPREADS
                               Last (bps)   Net
                                            Change
                                            (bps)
 U.S. 2-year dollar swap         9.00         0.50
 spread
 U.S. 3-year dollar swap        10.25        -1.50
 spread
 U.S. 5-year dollar swap         8.75         0.25
 spread
 U.S. 10-year dollar swap        2.00         0.50
 spread
 U.S. 30-year dollar swap      -26.00         1.00
 spread


 (Reporting by Chuck Mikolajczak
Editing by Nick Zieminski)

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