November 25, 2019 / 2:56 PM / 19 days ago

TREASURIES-Bonds steady before two-year auction

    * Treasury to sell $40 bln two-year notes Monday
    * 42-day repo operation oversubscribed
    * U.S.-China trade deal in focus

    By Karen Brettell
    NEW YORK, Nov 25 (Reuters) - U.S. Treasury yields were
steady on Monday before the Treasury Department is due to sell
$113 billion in coupon-bearing supply this week, and as
investors focused on the likelihood that the United States and
China will reach a trade deal.
    The Treasury will sell $40 billion in two-year notes on
Monday, followed by $41 billion in five-year notes on Tuesday
and $32 billion in seven-year notes on Wednesday.
    “I think the things that people are looking at the most are
funding and supply,” said Tom Simons, a money market economist
at Jefferies in New York.
    Funding constraints heading into month- and year-end are in
focus, after funding stresses in September prompted the Federal
Reserve to step in to shore up liquidity in the market.
    The New York Federal Reserve on Monday accepted $25 billion
of $49 billion in bids from primary dealers at a 42-day
repurchase agreement (repo) operation, showing strong demand for
loans that will cover the year-end period.
    “This isn’t indicative of a panic or funding pressure, but
it shows there is already a cognizance of trying to buy some
insurance in case funding does get wonky by the end of the
year,” Simons said.
    Optimism that a trade deal will be reached to end the
damaging U.S-China trade war boosted risk appetite and reduced
demand for safe-haven bonds earlier on Monday, though bonds
reversed price losses after the New York open.
    China and the United States are very close to a phase one
trade deal, the Global Times, a tabloid run by the ruling
Communist Party's official People's Daily, said on Monday,
discounting "negative" media reports.
    China said on Sunday it would seek to improve protections
for intellectual property rights, which has been a key point of
contention between the two countries.
    Fed Chair Jerome Powell will speak on Monday evening and is
expected to underline the steady outlook for rates.
    The bond market will be closed on Thursday for the
Thanksgiving Day holiday.

November 25 Monday 9:35AM New York / 1435 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.555        1.5868    -0.002
 Six-month bills               1.56         1.5983    0.002
 Two-year note                 99-196/256   1.6238    -0.006
 Three-year note               100-10/256   1.6114    -0.006
 Five-year note                99-106/256   1.6241    -0.005
 Seven-year note               99-120/256   1.7066    -0.004
 10-year note                  99-224/256   1.7637    -0.010
 30-year bond                  103-176/256  2.2062    -0.017
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        -1.00         1.25    
 spread                                               
 U.S. 3-year dollar swap        -4.00         1.25    
 spread                                               
 U.S. 5-year dollar swap        -6.75         0.75    
 spread                                               
 U.S. 10-year dollar swap      -10.00         0.50    
 spread                                               
 U.S. 30-year dollar swap      -36.75         0.75    
 spread                                               
 
 (Editing by Nick Zieminski
)
  
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