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TREASURIES-U.S. 5/30 yield curve briefly inverts for first time in roughly 16 years

    * U.S. 2/10 yield curve flattest in more than two years
    * Other parts of Treasury yield curve are also inverted
    * U.S. 2/10 OIS curve is also inverted
    * U.S. 2-year note, 5-year note auctions show mixed results

 (Updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, March 28 (Reuters) - The U.S. Treasury yield
curve, as measured by the gap between five and 30-year yields,
briefly inverted on Monday for the first time since early 2006,
as a sell-off in the bond market resumed, raising concerns about
the risk of recession.
    Investors pay closer attention to the U.S. 2/10 year yield
curve for recession signals, but the 5/30 inversion has
increased the chances of the former inverting as well.
    The U.S. 2s/10s yield curve was last at 12.7 basis points
, the flattest since March 2020.
    The 2/10 inversions have preceded the last eight recessions,
including 10 of the last 13, according to BoFA Securities in a
research note.
    U.S. five-year yields jumped to 2.673%, their
highest since December 2018 and were last down 2 basis points at
2.5529%. U.S. 2-year yields, which are closely tied to the
Federal Reserve's rate outlook, also soared, rising to their
strongest level since mid-April 2019. They were last up 2.7
basis points at 2.3256%.
    Yields on longer-dated maturities, on the other hand, such
as those U.S. 10-year notes and 30-year bonds declined.
    While parts of the yield curve, namely U.S. 5/10 and U.S.
3/10 inverted last week, the slide of the gap between  five- and
30-year maturities of the biggest bond market in the world into
negative territory raised concerns the Fed's hawkish approach to
tackling inflation might hurt growth.
    That said, some in the market were less worried about the
implications of an inverted curve. Inversions, specifically in
the U.S. 2/10 and U.S. 3-month/10-year, typically are considered
a harbinger of eventual recession.
    "An inverted curve, no matter the maturities involved, is
not very good at predicting the timing of
recessions—historically, recessions follow inversions with long
and variable lags," said Dave Wagner, portfolio manager of Aptus
Capital Advisors.
    "What's more, stock prices tend to appreciate between curve
inversions and recessions, and sometimes a lot. It definitely
doesn't pay to be too pessimistic as soon as the curve inverts."
    The spread between 30- and five-year U.S. Treasury yields
fell to as low as minus 7 basis points (bps),
moving below zero for the first time since February 2006,
according to Refinitiv data. That spread was last flat at 0.80
basis points.
    The spread has collapsed from a positive 53 basis points at
the start of this month.
    Also on Monday, the U.S. Treasury held auctions for U.S.
2-year and 5-year notes, with mixed results. The U.S. 2-year
sale's high yield of 2.365%, was higher than the expected rate
at the bid deadline, suggesting investors demanded a higher
premium to buy the note.
    The 2-year note auction's bid-to-cover ratio, a gauge of
demand, was 2.46, the lowest since Nov 22, 2021.
    The U.S. five-year note auction, on the other hand, showed
strong results. The note saw a high yield of 2.543%, lower than
the expected rate at the deadline, while the bid-to-cover ratio
was 2.53, the highest since Oct. 27 last year.
    In the overnight index swaps (OIS) market, the yield curve
between two and 10-year swap rates inverted for the first time
since late 2019 and last stood at minus 4.7 basis
points. 
    The OIS market reflects traders' rate expectations and like
Treasuries, has a yield curve that plots interest rates from
short-term to long-term maturities. 
    Some analysts say the OIS curve is a better indicator of
incoming recessions than Treasuries. The OIS looks at the short-
and long-term path of the fed funds rate, the purest risk-free
rate banks charge each other for overnight loans to meet
reserves required by the U.S. central bank. 
    The five-30 year OIS curve had already inverted earlier in
March and various parts of the forwards curve have also
inverted. 
    U.S. benchmark 10-year yields pushed above the 2.5% marker
to 2.55%, hitting their highest since April 2019,
but were last down 4 basis points at 2.453% . 
    
  March 28 Monday 3:59PM New York / 1959 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.5375       0.5457    0.008
 Six-month bills               0.98         0.9984    0.012
 Two-year note                 98-113/256   2.334     0.035
 Three-year note               97-174/256   2.5684    0.031
 Five-year note                96-230/256   2.5494    -0.026
 Seven-year note               95-198/256   2.5448    -0.031
 10-year note                  94-240/256   2.4548    -0.038
 20-year bond                  94-196/256   2.7174    -0.044
 30-year bond                  93-176/256   2.5532    -0.051
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        26.50         1.50    
 spread                                               
 U.S. 3-year dollar swap        14.00         0.75    
 spread                                               
 U.S. 5-year dollar swap         7.75         0.75    
 spread                                               
 U.S. 10-year dollar swap        8.25         0.50    
 spread                                               
 U.S. 30-year dollar swap      -17.50        -0.50    
 spread (Reporting by Gertrude Chavez-Dreyfuss in New York; Additional
reporting by Dhara Ranasinghe in London and Yoruk Bahceli;
Editing by Emelia Sithole-Matarise, Mark Potter, Andrea Ricci
and Marguerita Choy)
  
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