November 8, 2017 / 2:18 PM / a year ago

TREASURIES-U.S. government debt yields flat before 10-year auction

    * U.S. to sell $23 bln in 10-year notes at 1800 GMT
    * U.S. yield curve near flattest level in a decade

    By Richard Leong
    NEW YORK, Nov 8 (Reuters) - U.S. Treasury yields edged
higher on Wednesday with the yield curve close to its flattest
level in a decade, in advance of a $23 billion auction of
10-year government securities, the second part of the $64
billion quarterly refunding this week.
    Over the past week and a half, traders have piled into
longer-dated Treasuries and reduced holdings in shorter-dated
issues as they brace for more interest rate increases from the
Federal Reserve while expecting domestic inflation to hold below
the Fed's 2-percent target, analysts said.
    Uncertainty about whether Republicans in U.S. Congress will
pass tax cuts and other changes to federal tax code have made
such "curve-flattener" trades more appealing, they said, as have
diminished chances the government will introduce a Treasury bond
that matures beyond 30 years.
    Growing demand for longer-dated Treasuries has raised
concerns that the upcoming 10-year and 30-year supply may become
     Nomura Securities International strategists described the
dramatic narrowing of yields as "power flattening."
    "The power flattening of the yield curve is richening long
end both outright and on the curve," they wrote in a research
note. "After an average three-year auction, we are cautious into
the 10-year supply."
    In "when-issue" activity, traders expected the 10-year sale
at 1 p.m. (1800 GMT) to fetch a yield of 2.300 percent
, compared with 2.346 percent at the previous
10-year auction in October, according to Tradeweb data.
    At 9:00 a.m. (1400 GMT), the 10-year Treasury note yield
 was marginally higher at 2.313 percent on the open
market, while the 30-year bond yield was up half a
basis point at 2.775 percent.
    The two-year yield rose nearly 1 basis point to
1.637 percent.  
    The yield spread between two-year and 10-year Treasuries
 was 67.2 basis points. Earlier in the session it
contracted to 66.7 basis points, the tightest since November
2007, Reuters data showed.
  November 8 Wednesday 9:00AM New York / 1400 GMT
 US T BONDS DEC7               154-18/32    -0-4/32   
 10YR TNotes DEC7              125-100/256  -0-8/256  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.1975       1.2178    0.000
 Six-month bills               1.3075       1.3345    0.002
 Two-year note                 99-188/256   1.6371    0.008
 Three-year note               99-252/256   1.7554    0.000
 Five-year note                100-16/256   1.9867    0.004
 Seven-year note               100-128/256  2.1723    0.004
 10-year note                  99-116/256   2.3127    0.006
 30-year bond                  99-124/256   2.7754    0.005
         YIELD CURVE           Last (bps)   Net       
 10-year vs 2-year yield       67.40        -0.70     
 30-year vs 5-year yield       78.80        0.00      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        20.00        -0.50    
 U.S. 3-year dollar swap        18.00        -2.25    
 U.S. 5-year dollar swap         7.25         0.00    
 U.S. 10-year dollar swap       -2.75        -0.25    
 U.S. 30-year dollar swap      -26.25         0.00    
 (Reporting by Richard Leong; Editing by David Gregorio)
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