November 25, 2019 / 7:06 PM / 11 days ago

TREASURIES-Bonds steady, two-year auction sees solid demand

 (Adds auction results, updates prices)
    * Treasury sells $40 bln in two-year notes 
    * 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
little changed on Monday after the Treasury Department sold $40
billion in two-year notes to solid demand, the first sale of
$113 billion in coupon-bearing supply this week.
    Primary dealers bought only 23% of the two-year sale, a sign
that there was strong demand for the notes from fund managers
and other investors.
    The Treasury will also sell $41 billion in five-year notes
on Tuesday and $32 billion in seven-year notes on Wednesday.
    The auctions come as investors are also closely watching
funding markets for any sign of strain before month- and
year-end, when dealers and investors typically pare down their
balance sheets.
    “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 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 1:56PM New York / 1856 GMT
                               Price        Current   Net Change
                                            Yield %   (bps)
 Three-month bills             1.5575       1.5894    0.000
 Six-month bills               1.57         1.6086    0.013
 Two-year note                 99-198/256   1.6196    -0.010
 Three-year note               100-16/256   1.6033    -0.014
 Five-year note                99-116/256   1.6158    -0.013
 Seven-year note               99-128/256   1.7017    -0.009
 10-year note                  99-228/256   1.762     -0.012
 30-year bond                  103-204/256  2.2013    -0.022
                                                      
   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        -4.25         1.00    
 spread                                               
 U.S. 5-year dollar swap        -6.50         1.00    
 spread                                               
 U.S. 10-year dollar swap       -9.50         1.00    
 spread                                               
 U.S. 30-year dollar swap      -36.25         1.25    
 spread                                               
 



 (Editing by Nick Zieminski)
  
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