December 26, 2018 / 3:00 PM / 6 months ago

TREASURIES-U.S. yields hold steady ahead of 5-year note sale

    * U.S. sells $41 bln in 5-year notes at 1 p.m. EST 
    * U.S. 10-year yields fall to lowest since April 
    * U.S. 2-to-10-year yield curve steepest in three weeks

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, Dec 26 (Reuters) - U.S. Treasury yields were firm
on Wednesday with 10-year yields hitting eight-month lows as
safe-haven demand for U.S. government debt stoked by the recent
stock market rout was offset by moves to make room for this
week's Treasury supply.
    Turmoil in Washington from a partial government shutdown
that began Saturday and U.S. President Donald Trump's criticism
of Federal Reserve Chairman Jerome Powell has pushed investors
away from equities and other risky assets.
    "They added uncertainties to a market that's already
jittery," said Larry Milstein, head of government and agency
trading at R.W. Pressprich & Co in New York.
    Earlier Wednesday, benchmark 10-year Treasury yields
 fell to 2.720 percent, the lowest since April 2. At
9:36 a.m. (1436 GMT), it was marginally higher from late Monday
at 2.760 percent.
    The gap between two-year and 10-year yields
grew to its widest in three weeks on bets the Fed might pause
its 2019 rate-hike campaign earlier than previously thought in
response to signs of slowing U.S. economic growth and the sharp
stock market losses.
    The two-year yield was 2.579 percent, down 1 
basis point from Monday. It touched 2.540 percent earlier
Wednesday, the lowest since July 6.
    The gap between two-year and 10-year yields
expanded to 18.7 basis points, hovering at its widest in three
weeks.
    Wall Street opened higher on Wednesday, with the S&P 500
index was up 0.8 percent.     
    Trading volume was light with many European markets
remaining closed after Christmas. U.S. financial markets
reopened after being shut for the holiday.
    The sharp decline in U.S. yields since November has reduced
the appeal of Treasuries among investors, who expected yields to
rise, stemming from the growing federal deficit after the
massive tax cut a year ago.
    On Monday, the Treasury sold $40 billion of two-year notes
to soft demand with the bid-to-cover ratio posting its weakest
reading in a decade.
    "It was not a particularly good auction," Milstein said.
    The Treasury will auction $18 billion of two-year
floating-rate notes at 11:30 a.m. EST (1630 GMT) and $41 billion
of five-year Treasuries at 1 p.m. EST (1800 GMT).
    In "when issue" activity, traders expected the latest
five-year supply to sell at a yield of 2.6090
percent, which would be the lowest yield at a five-year auction
since January, Tradeweb data showed.
    December 26 Wednesday 9:35AM New York / 1435 GMT
                               Price                  
 US T BONDS MAR9               145-10/32    -4/32     
 10YR TNotes MAR9              121-92/256   -2/32     
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2.4          2.4482    0.002
 Six-month bills               2.4675       2.5334    -0.006
 Two-year note                 99-218/256   2.5766    -0.011
 Three-year note               100-46/256   2.5615    -0.008
 Five-year note                101-78/256   2.5909    0.007
 Seven-year note               101-68/256   2.6734    0.003
 10-year note                  103-44/256   2.756     0.003
 30-year bond                  107          3.0177    0.015
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       17.70        -0.30     
 30-year vs 5-year yield       42.50        1.15      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        13.00        -2.00    
 spread                                               
 U.S. 3-year dollar swap         9.25        -1.00    
 spread                                               
 U.S. 5-year dollar swap         7.00        -0.75    
 spread                                               
 U.S. 10-year dollar swap        1.50        -0.50    
 spread                                               
 U.S. 30-year dollar swap      -16.00        -1.50    
 spread                                               
 
    2.761318.1

    
 (Reporting by Richard Leong
Editing by Jeffrey Benkoe)
  
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