February 21, 2018 / 4:00 PM / 6 months ago

TREASURIES-Treasuries steady ahead of $35 bln 5-year note auction

* Treasury to auction $35 bln in five-year notes

* Two-year yield hits nine-year high

By Kate Duguid

NEW YORK, Feb 21 - U.S. Treasury yields were steady on Wednesday ahead of an auction of $35 billion in five-year notes, part of the week’s $258 billion issuance intended to help fund President Donald Trump’s tax overhaul and two-year budget deal.

The tax overhaul bill signed into law in December is expected to add as much as $1.5 trillion to the federal debt load, while the budget agreement would raise government spending by almost $300 billion over the next two years.

Demand from investors may come in below expectations.

“I think (the five-year auction) will be a little on the soft side. You’ve got the event risk of the FOMC minutes, you’ve got a lot of Fedspeak in the next few days,” said Aaron Kohli, interest rates strategist at BMO Capital Markets in New York.

The week’s supply is the second-largest amount ever over a three-day period, $1 billion short of the record set in August 2010.

The U.S. Treasury Department will also auction off $15 billion in two-year floating-rate notes at 11 a.m. ET (1600 GMT) ahead of the five-year note auction at 1:00 p.m. (1800 GMT).

At 10:18 a.m. ET (1518 GMT) 10-year Treasury yields were at 2.891 percent, down slightly from Tuesday’s close at 2.893 percent. The yield on the two-year Treasury note was at 2.262 percent after hitting a nine-year peak of 2.282 percent earlier in the day.

The yield on the five-year note was 2.647 percent, just slightly below yesterday’s close at 2.648 percent.

Investors will also be watching the Federal Reserve’s release of minutes from its January meeting later this afternoon to see whether the central bank indicates it may hike rates a fourth time in 2018.

“We’re getting into this discussion about the Fed path, where Street economists are getting a lot more bullish on the prospects of economic data,” said Kohli. “Everyone is going to be canvassing the minutes for any sense that (the Fed) will have an extra hike jammed in there.”

Overnight trading in Asia was quiet with China on holiday until Thursday. (Reporting by Kate Duguid; Editing by Meredith Mazzilli)

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