November 14, 2017 / 4:02 PM / in a year

TREASURIES-U.S. 2-year note yield hits another 9-year high; flattening continues

    By Gertrude Chavez-Dreyfuss
    NEW YORK, Nov 14 (Reuters) - U.S. Treasury two-year note
yields climbed to a nine-year peak on Tuesday while those on
long-dated debt fell as the yield curve flattened for a second
straight day and investors braced for the next tightening by the
Federal Reserve in December.
    A flat yield curve typically suggests the Fed is on track to
 raise U.S. interest rates, pushing yields on the short end
higher, while low inflation is seen limiting longer-dated
    U.S. benchmark 10-year yields also hit a nearly three-weak
peak after data showed U.S. producer prices rose a more-than-
expected 0.4 percent last month after a similar gain in
September, boosting the PPI 2.8 percent in the 12 months through
October for the biggest annual increase in wholesale inflation
in over 5-1/2 years.
    Even though yields on both the two-year and the 10-year rose
after the U.S. data, the curve continued to tighten.
    The yield gap between shorter-dated and longer-dated
Treasuries shrank on Tuesday, with the spread between U.S.
two-year note yields and that of U.S. 10-year notes contracting
to 69.20 basis points.
    The spread between five-year and 30-year yields also
flattened to 76.70 basis points. That was the
narrowest spread in nearly two weeks.
    The flattening move started overnight and continued
throughout the curve and the trend remains in place, said Justin
Lederer, Treasury analyst at Cantor Fitzgerald in New York.
    "The supply dynamics going into 2018 and beyond for the
Treasury suggests that there is a little pressure on shorter
maturities, whereas the longer end is holding in," he said.
    The U.S. Treasury plans to finance much of next year's
deficit through short-term bills instead of longer-dated paper,
a move that has contributed to the current curve-flattening
trend, according to Action Economics.
    On Friday, the yield curve steepened on technical factors
and dealers reduced their holdings of longer-dated debt
following the week's auctions.
    Analysts said Friday's move was an aberration.
    In mid-morning trading on Tuesday, the 10-year Treasury
yield was at 2.378 percent, down from 2.4 percent
late on Monday.
    Earlier in the global session, U.S. 10-year yields hit
2.414, the highest since late October. 
    The U.S. two-year yield hit a nine-year peak just
shy of 1.7 percent, up from Monday's 1.687 percent.
    U.S. 30-year bond yields, on the other hand, fell to 2.841
percent, from 2.869 percent on Monday.

       November 14 Tuesday 10:33AM New York / 1533 GMT
 US T BONDS DEC7               152-28/32    0-15/32   
 10YR TNotes DEC7              124-196/256  0-36/256  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.24         1.2612    0.046
 Six-month bills               1.36         1.3884    0.018
 Two-year note                 99-164/256   1.6872    0.000
 Three-year note               99-210/256   1.8118    -0.005
 Five-year note                99-180/256   2.0632    -0.010
 Seven-year note               99-248/256   2.2548    -0.017
 10-year note                  98-216/256   2.3806    -0.019
 30-year bond                  98-48/256    2.8402    -0.029
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        19.25        -0.25    
 U.S. 3-year dollar swap        17.75         0.00    
 U.S. 5-year dollar swap         6.00        -0.25    
 U.S. 10-year dollar swap       -1.50         0.00    
 U.S. 30-year dollar swap      -24.50         0.50    
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Dan Grebler)
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