March 28, 2017 / 8:00 PM / 3 years ago

TREASURIES-Yields rise in line with stocks after strong U.S. confidence data

* U.S. consumer confidence index jumps to 16-year high

* Yield curve flattest since Nov. 9

* U.S. 5-year note auction shows strong central bank demand (Adds comment, 5-year note auction results, updates prices)

By Gertrude Chavez-Dreyfuss

NEW YORK, March 28 (Reuters) - U.S. Treasury debt yields rose on Tuesday, in generally below-average volume, tracking a jump in stocks after U.S. consumer confidence surged to a 16-year high.

Yields, which move inversely to prices, hit session highs following the consumer confidence report and a U.S. five-year note auction that showed robust demand from foreign central banks.

Lou Brien, market strategist at DRW Trading in Chicago, said gains in the U.S. stock market and the strong consumer confidence data turned the corner for Treasury debt yields.

The Conference Board said the consumer confidence index hit 125.6 in March, surpassing expectations for a reading of 114 and much higher than the reading of 116.1 in February. The March reading was the highest since December 2000.

“This is an impressive gain ... and a notable disconnect with 10-year yields under 2.38 percent, but it surely reflects the ongoing bid for equities,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets in New York.

The consumer confidence data, however, covered the period before Republicans in the House of Representatives withdrew their healthcare plan after promising to abolish former president Barack Obama’s 2010 Affordable Care Act.

The healthcare setback has boosted Treasuries’ safe-haven appeal in the last few days as investors worried about how it would impact the Trump administration’s push for an overhaul of the tax code and other efforts to boost the economy.

The U.S. Treasury’s five-year note auction, meanwhile, turned out favorably, thanks to strong foreign central bank bids of 68.9 percent. That was up from the prior 58.2 percent, as well as the average of 61.4 percent.

The note’s high yield was 1.950 percent, above the 1.945 percent rate at the bid deadline.

In afternoon trading, benchmark 10-year notes were down 11/32 in price to yield 2.416 percent, up from 2.375 percent on Monday.

U.S. 30-year bond prices were down 24/32, yielding 3.017 percent, higher than Monday’s 2.98 percent.

U.S. two-year note yields were at 1.301 percent, up from Monday’s 1.267 percent.

The yield gap between shorter-dated and longer-dated Treasuries shrank on Tuesday, with the spread between the two-year and 10-year at 111 basis points, its flattest since the day after the Nov. 8 U.S. elections.

A flat yield curve is often an early warning sign of a looming recession.

“In my opinion, this flattening of the yield curve will continue,” DRW’s Brien said. “There’s too much uncertainty as to what comes next from the administration. I don’t see any surge in inflation that would put the long end higher in a quick way.” (Reporting by Gertrude Chavez-Dreyfuss; Editing by Lisa Von Ahn and Paul Simao)

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