November 6, 2017 / 7:59 PM / 2 years ago

TREASURIES-U.S. yield curve moves to flattest level in a decade

    * Latest jobs report supports notion of low U.S. inflation
    * U.S. to sell $62 bln in coupon debt at November refunding
    * U.S. 30-year yield hits lowest level since late September

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, Nov 6 (Reuters) - The gap between U.S. short-dated
and long-dated Treasury yields on Monday contracted to its
tightest levels in a decade as sluggish domestic inflation
underpinned demand for longer-maturity government bonds.
    Inflation will likely hold below the Federal Reserve's 2
percent goal in the wake of the latest payrolls report released
on Friday, which showed average hourly earnings stalled last
month while jobs growth rebounded after it was depressed by
Hurricanes Harvey and Irma in September.
    The October jobs figures supported the notion the U.S.
central bank would raise short-term interest rates at its
December policy meeting.
    "It's a continuation of the belief that last week's jobs
report will not derail a rate hike in December," said Bryce
Doty, senior portfolio manager at Sit Investment Associates in
    Uncertainty over whether Republicans could pass their tax
plan has also flattened the yield curve as it diminished hopes
for faster economic growth and worries about more U.S. borrowing
to finance it.
    The yield spread between two-year and 10-year Treasuries
broke below 70 basis points, a level last seen in
November 2007, Reuters data showed.
    Monday's yield flattening was led by the fall in
longer-dated yields with the 30-year yield hitting its lowest
level since late September.
    The benchmark 10-year yield was down 2.5 basis
points at 2.318 percent after hitting its lowest level in two
weeks, while the two-year yield slipped nearly 1
basis point at 1.617 percent.
    The 30-year yield was 2.797 percent, down 2.5
basis points from late Friday.
    Interest rate futures implied traders fully priced in a
quarter-point rate increase from the Fed at its Dec. 12-13
meeting, CME Group's FedWatch tool showed.
    "Expect a resumption of the curve flattening" after the
Fed's last meeting in 2017, Doty said.
    The decline in bond yields was limited by the $62 billion in
coupon-bearing supply for sale this week. Proceeds from the sale
of the new debt would raise $19.3 billion in cash for the
government and refund $42.7 billion to Treasuries holders. 
    The Treasury Department will sell $24 billion in three-year
notes on Tuesday; $23 billion in 10-year debt
 on Wednesday and $15 billion in 30-year bonds
 on Thursday.
    Longer-dated yields have fallen in the aftermath of comments
last week from Treasury Secretary Steve Mnuchin who signaled
there is no pending plan for the government to introduce a
long-dated issue that matures beyond 30 years, fund managers
   Monday, Nov. 6 at 1435 EST (1935 GMT):
 US T BONDS DEC7               154-7/32     0-18/32   
 10YR TNotes DEC7              125-92/256   0-52/256  
                               Price        Current   Net
                                            yield     change
                                            (pct)     (bps)
 Three-month bills             1.17         1.1896    0.013
 Six-month bills               1.28         1.306     0.005
 Two-year note                 99-198/256   1.6167    -0.008
 Three-year note               99-184/256   1.7235    -0.013
 Five-year note                100-20/256   1.9834    -0.022
 Seven-year note               100-128/256  2.1724    -0.027
 10-year note                  99-104/256   2.3181    -0.025
 30-year bond                  99-16/256    2.7965    -0.026
         YIELD CURVE           Last (bps)   Net       
 10-year vs 2-year yield       69.90        -1.70     
 30-year vs 5-year yield       81.30        -0.85     
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        20.75        -0.50    
 U.S. 3-year dollar swap        20.25         0.00    
 U.S. 5-year dollar swap         7.25         0.25    
 U.S. 10-year dollar swap       -2.75        -0.50    
 U.S. 30-year dollar swap      -27.25        -1.00    

 (Reporting by Richard Leong; Editing by Susan Thomas and Chizu
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