Bonds News

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

 (Recasts with two-year note auction results, adds analyst
comments, updates yields)
    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 an auction of two-year notes attracted solid demand from the
    The benchmark 10-year Treasury yield fell to its
lowest level since May 10 at 1.564% following the auction. It
was last down 4.1 basis points at 1.5672%.
    The 30-year yield, which tumbled to its lowest since May 7
at 2.263%, was last 3.6 basis points lower at 2.2654%.
    The $60 billion of 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, which typically
moves in step with interest rate expectations, was last down
less than a basis point at 0.1453%. 
    Investor concerns about inflation have eased in response to
what the U.S. Federal Reserve has preached over the past few
    On Monday, Fed Board Governor Lael Brainard addressed
inflation fears, saying she expects that 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. If we get a few
days without such commentary, does the fear re-emerge?," said
Ellis Phifer, managing director in fixed income research at
Raymond James in Memphis, Tennessee.
    "It has every time so far but with less effect. The longer
end of the Treasury curve, which is most susceptible to
inflation, has been trading sideways to slightly lower in yield
since topping in March," he added. 
    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 3.17 basis points flatter at 141.82 basis
    In the repo market, the overnight rate rose to
0.02% from -0.1% on Monday - 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.
  May 25 Tuesday 2:01 PM New York / 1801 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.015        0.0152    0.000
 Six-month bills               0.035        0.0355    0.001
 Two-year note                 99-246/256   0.1453    -0.008
 Three-year note               99-214/256   0.3055    -0.016
 Five-year note                99-222/256   0.7775    -0.030
 Seven-year note               100-40/256   1.2264    -0.038
 10-year note                  100-136/256  1.5672    -0.041
 20-year bond                  101-72/256   2.1705    -0.039
 30-year bond                  102-96/256   2.2654    -0.036
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap         8.50        -0.25    
 U.S. 3-year dollar swap        11.00        -0.25    
 U.S. 5-year dollar swap         8.25         0.00    
 U.S. 10-year dollar swap       -3.75        -0.50    
 U.S. 30-year dollar swap      -29.75        -0.25    
 spread (Reporting by Gertrude Chavez-Dreyfuss in New York; additional
reporting by Karen Pierog in Chicago
Editing by Mark Heinrich and Steve Orlofsky)