(Updates market action after Fed speeches)
* Treasury to sell $56 bln supply this week
* Stronger German debt helps U.S. bonds firm
* Fed's Bostic indicates doubt about three rate hikes this year
By Kate Duguid
NEW YORK, Jan 8 - U.S. bond yields were little changed on Monday after a boost from stronger German government debt and a Federal Reserve official's remarks that the U.S. central bank may only raise rates two times this year.
"Overall it has been an extremely quiet session. The market had a bit of a bid tracking Europe and (German) bunds earlier today but quickly hit its highs early on and made back its levels," said Justin Lederer, a Treasury analyst at Cantor Fitzgerald in New York.
German 10-year debt yields fell as low as 0.41 percent on Monday, the lowest since Dec. 28. Disappointing jobs data on Friday has also raised doubts that the U.S. central bank will raise three times this year, as Fed officials have indicated.
Atlanta Fed President Raphael Bostic said on Monday the central bank may only need to raise rates two or fewer times in 2018 given weak price pressures and possible loss of public confidence in its ability to hit a 2 percent inflation target. Job growth slowed more than expected last month as retail employment declined, but a pick-up in monthly wage gains fueled hopes that inflation may be picking up. In separate remarks on Monday, San Francisco Fed President John Williams said the central bank could better fight a recession by committing to hold down interest rates longer to keep average inflation on a steady upward path. Attention is focused on new supply as the U.S. Treasury Department prepares to auction new three-year notes on Tuesday, 10-year notes on Wednesday and 30-year bonds on Thursday.
Demand for three-year notes may be mixed given that the U.S. central bank is expected to continue hiking interest rates. But sales of long-term securities are expected to go well.
"Since 10-years seem to be firmly entrenched in that 2.40 percent to 2.50 percent area, I would think that should have a tendency to garner some interest," Mary Anne Hurley, vice president of fixed income at D.A. Davidson in Seattle. "As for 30-years, there's lots of demand for longer-dated paper."
The U.S. 10-year note yielded 2.478 percent at 2:44 p.m. (1744 GMT). The benchmark government bond last closed at 2.476 percent.
The three-year note yield , which is sensitive to traders' views on Fed policy, stayed near the decade high of 2.07 percent reached earlier in the day.
January 8 Monday 2:44PM New York / 1944 GMT
PriceUS T BONDS MAR8 151-24/32-0-2/32 10YR TNotes MAR8 123-128/256-0-4/256
PriceCurrent Net
Yield % Change
(bps)Three-month bills 1.39 1.414 0.010Six-month bills 1.5451.5784-0.011Two-year note 99-214/256 1.960.000Three-year note 99-124/256 2.057 0.000Five-year note 99-66/2562.2836-0.001Seven-year note 99-8/256 2.40160.00010-year note 98-4/256 2.47820.00230-year bond 98-184/256 2.81360.004
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps) U.S. 2-year dollar swap18.50 0.25spread U.S. 3-year dollar swap18.25 0.25spread U.S. 5-year dollar swap 4.00 0.00spread U.S. 10-year dollar swap -1.50-0.50spread U.S. 30-year dollar swap-20.50-0.25spread (Reporting by Kate Duguid; Editing by Alistiar Bell and Richard Chang)
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