U.S. yields slightly higher after soft auction; risk tone still positive

* U.S. Q2 advance GDP lower than expected

* U.S. initial jobless claims were higher than forecast

* U.S. 10-year TIPS yield hits new record low

* U.S. 7-year note auction was worst in four months -analyst

By Gertrude Chavez-Dreyfuss

NEW YORK, July 29 (Reuters) - U.S. Treasury yields inched higher on Thursday, but were below their peaks for the day, after a soft 7-year note auction added to the positive risk tone which persisted all day despite weaker-than-expected U.S. data.

Overall, U.S. yields have been on a downward trajectory over the last couple of months. Since mid-May, U.S. 10-year yields have fallen about 40 basis points.

A Federal Reserve statement on Wednesday that suggested the U.S. central bank is inching closer to reducing its asset purchases had limited impact on the market, as yields stalled. A Fed tapering would typically reduce the appeal of Treasuries, pushing yields higher.

"The Fed thinks they can taper and the economy can keep growing," said Zhiwei Ren, portfolio manager at Penn Mutual Asset Management in Philadelphia.

"They think they can hike rates and the economy can keep growing and they can hike more. I don't think the bond market is buying it," he added.

Treasury yields initially fell on Thursday after the release of softer-than-forecast U.S. economic data, but came slightly back up.

The advance estimate for U.S. gross domestic product in the second quarter showed the economy grew at a 6.5% annualized rate, lower than market forecasts for an 8.5% rise.

In a separate report, U.S. initial jobless claims were at 400,000 for the latest week, higher than consensus expectations of 380,000.

U.S. stocks looked past the U.S. data, with the Dow .DJI and S&P 500 .SPX hitting fresh intraday record highs earlier due in part to a slate of strong corporate earnings reports. .N

Upbeat Chinese news on regulation that pushed their shares higher added to the sanguine mood on Wall Street, as did strong European economic reports on euro zone investor sentiment and German inflation.

Thursday's U.S. 7-year auction was lackluster, with a yield of 1.05%, higher than the expected rate at the bid deadline of 1.042%, suggesting that investors wanted a little more yield to take the note.

The bid-to-cover ratio, a gauge of demand, was 2.23, below both the 2.36 last month and what analysts said was the 2.33 average.

"Bid to cover at 2.23x reflected a preference for either 5s or 7s in this environment," Jim Vogel, senior rates strategist at FHN Financial, said in a research note after the auction.

"Dealers are not stepping up this week, with a share of only 22.2%. It's the worst 7-year auction in four months."

In late afternoon trading, the U.S. 10-year Treasury yield was up a little at 1.267% US10YT=RR .

U.S. 30-year yields were little changed at 1.913% US30YT=RR from Wednesday's 1.911%.

Post-auction, U.S. 7-year note yields were slightly higher at 1.024% US7YT=RR

In other parts of the Treasury market, the yield on 10-year Treasury Inflation-Protected Securities (TIPS) plunged to a fresh record low of -1.175% US10YTIP=RR , as investors priced in higher inflation going forward.

Penn Mutual's Ren said the record low yields on 10-year TIPS, also known as real yields, is a "pessimistic signal" on the economy.

July 29 Thursday 3:45PM New York / 1945 GMT


Current Net

Yield % Change

(bps) Three-month bills US3MT=RR 0.045


-0.005 Six-month bills US6MT=RR



0.002 Two-year note US2YT=RR

99-217/256 0.2015

-0.009 Three-year note US3YT=RR



-0.016 Five-year note US5YT=RR

99-124/256 0.7303

-0.010 Seven-year note US7YT=RR

101-128/256 1.0248

0.005 10-year note US10YT=RR

103-76/256 1.2659

0.003 20-year bond US20YT=RR

106-236/256 1.8314

0.000 30-year bond US30YT=RR

110-128/256 1.9111



Last (bps) Net



U.S. 2-year dollar swap




U.S. 3-year dollar swap




U.S. 5-year dollar swap




U.S. 10-year dollar swap




U.S. 30-year dollar swap




Reporting by Gertrude Chavez-Dreyfuss; Editing by David Gregorio and Sonya Hepinstall

Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.

All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.

Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.

We are using cookies to give you the best experience on our website. Read more or change your cookie settings.

Risk Warning: Your capital is at risk. Leveraged products may not be suitable for everyone. Please consider our Risk Disclosure.