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Bonds News

TREASURIES-U.S. yields lower after strong demand for two-year note auction

    * U.S. 2-year note auction attracts strong demand
    * U.S. yield curve flattens as inflation worries ease
    * U.S. reverse repo volume surges to 3rd highest since
launch

 (Adds bullets, details, updates prices)
    By Gertrude Chavez-Dreyfuss and Karen Pierog
    NEW YORK, May 25 (Reuters) - U.S. Treasury yields fell to
fresh multi-week lows and the yield curve flattened on Tuesday
as inflation concerns eased, with a strong auction of 2-year
notes further driving strong gains in prices. 
    The benchmark 10-year Treasury yield fell to a
two-week low of 1.56% and was last down 4 basis points at
1.562%.
    The 30-year yield, which tumbled to its lowest since May 7
at 2.255%, was last 4 basis points lower at 2.256%.
    The $60 billion in two-year notes were sold at a high yield
of 0.152% and a bid-to-cover ratio, a gauge of demand, of an
above-average 2.74.
    "Overall, the stats generated by the auction were very, very
strong," Tom Simons, money market economist at Jefferies, wrote
in a market report. "It looks like the flood of cash that has
been sloshing around the extreme front-end of the curve (bills,
repo, etc) has spilled over into the front-end of the coupon
curve as well."
    The two-year Treasury yield was last down 1 basis
point at 0.143%. 
    Investor concerns about inflation have eased in response to
what the U.S. Federal Reserve has preached over the past few
weeks.
    On Monday, Fed Board Governor Lael Brainard addressed
inflation fears, saying she expects spikes in prices associated
with supply bottlenecks and the reopening of the economy to
"subside over time."
    That message was consistent with what Fed Chair Jerome
Powell has said repeatedly over recent weeks.
    "The Fed has been pounding the table every chance it gets
that inflation is not a concern at this stage," said Ellis
Phifer, managing director in fixed income research at Raymond
James in Memphis, Tennessee. 
    "If we get a few days without such commentary, does the fear
re-emerge? It has every time so far but with less effect." 
    The yield curve flattened for a fourth straight session, as
investors bought the long end of the curve on the view that
price pressures would be stable for the rest of the year. 
    A closely watched part of the yield curve that measures the
gap between yields on two- and 10-year Treasury notes 
 was last 3.3 basis points flatter at 141.70 basis
points.
    In the repo market, the overnight rate rose to
0.02% from -0.01% on Monday, which was the lowest since late
March. Coronavirus support payments have pumped up the supply of
cash in the financial system, along with the Fed's asset
purchases.
    Part of that cash found its way to the Fed's reverse
repurchase agreement facility, which pays 0%. On Tuesday, the
amount awarded by the Fed for its daily operation climbed to
nearly $433 billion, the third-largest volume since the
facility's launch in 2013.
    
      May 25 Tuesday 3:52PM New York / 1952 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.015        0.0152    0.000
 Six-month bills               0.035        0.0355    0.001
 Two-year note                 99-247/256   0.1433    -0.010
 Three-year note               99-216/256   0.3029    -0.018
 Five-year note                99-230/256   0.771     -0.036
 Seven-year note               100-56/256   1.2169    -0.047
 10-year note                  100-156/256  1.5587    -0.049
 20-year bond                  101-116/256  2.1599    -0.050
 30-year bond                  102-148/256  2.2562    -0.045
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         8.50        -0.25    
 spread                                               
 U.S. 3-year dollar swap        11.00        -0.25    
 spread                                               
 U.S. 5-year dollar swap         8.00        -0.25    
 spread                                               
 U.S. 10-year dollar swap       -4.00        -0.75    
 spread                                               
 U.S. 30-year dollar swap      -30.25        -0.75    
 spread (Reporting by Gertrude Chavez-Dreyfuss in New York and Karen
Pierog in Chicago; Editing by Mark Heinrich, Steve Orlofsky and
Andrea Ricci)
  
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