TREASURIES-Ten-year, 30-year weaker ahead of new supply

* Longer-dated yields rise ahead of $66 bln supply

* 3-yr auction could be volatile on negative repo rates

* PIMCO goes short Treasuries on U.S. fiscal concerns

By Karen Brettell

NEW YORK, April 11 (Reuters) – Longer-dated U.S Treasuries
yields rose as investors prepared for $66 billion in new supply
this week and some remained nervous that the end of the Federal
Reserve’s easy money policies will send yields still higher.

Volatility in Treasuries used to back loans in the
repurchase agreement market may make Tuesday’s $32 billion
auction of three-year notes difficult to value, as the
Treasuries collateral are trading at negative levels in repo.

Investors typically sell the current series of three-year
notes before an auction, and then buy back the new series of
the notes, said Michael Cloherty, interest rate strategist at
RBC Capital Markets in New York.

However, the negative repo rates “makes that a little bit
more difficult to price, because of the financing volatility,”
Cloherty said. “I’d say that means slightly greater risk around
this auction.”

Three-year notes (US3YT=RR: Quote, Profile, Research) were unchanged in price on
Monday to yield 1.32 percent. They traded at an almost 5 basis
points premium in the when-issued (US3YTWI=TWEB: Quote, Profile, Research) market, which
indicates where traders expect the new debt may price, at 1.37
percent.

The U.S. government will also sell $21 billion in 10-year
notes on Wednesday, and $13 billion in 30-year bonds on
Thursday.

Data released later in the week will also be closely
watched, including retail sales data on Wednesday and producer
price and core price inflation readings on Thursday and
Friday.

Some investors are nervous that Treasury yields will rise
as the economy continues to improve and the Fed gradually
unwinds stimulus, including the end of its $600 billion bond
purchase program in June.

Inflation expectations in the Treasury Inflation-Protected
Securities market have also reflected some fears that the Fed
will lose control over inflation. Breakevens on five-year TIPS
are trading near their highest levels since July 2008, at 243
basis points.

Debate over the need to raise the debt ceiling may also
continue to hurt Treasuries, after the government only narrowly
averted a government shutdown on Friday due to disagreements
over how to cut spending.

The government needs to cut spending to reduce its $1
trillion deficit.

PIMCO shifted to a short position in U.S. government
related debt and raised its cash holdings on concerns about the
U.S. fiscal outlook. For more, see [ID:nL3E7FB10S]

Five-year Treasuries (US5YT=RR: Quote, Profile, Research) were unchanged in price to
yield 2.31 percent and benchmark 10-year notes (US10YT=RR: Quote, Profile, Research) fell
2/32 in price to yield 3.59 percent, up from 3.58 percent on
Friday.

Thirty-year bonds (US30YT=RR: Quote, Profile, Research) fell 4/32 in price to yield
4.65 percent, up from 4.64 percent.

(Editing by Chizu Nomiyama)

TREASURIES-Ten-year, 30-year weaker ahead of new supply