TREASURIES-U.S. prices advance after strong 5-year note auction

    * U.S. 5-year note auction shows strong results
    * Treasury prices rise following auction
    * Treasury will next offer $32 bln in U.S. 7-year notes 

 (Recasts, add 5-year note auction results, updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Dec 24 (Reuters) - U.S. Treasury prices rose on
Tuesday, pushing yields lower in generally thin trading,
bolstered by a strong U.S. five-year note auction in a light
market ahead of the holidays.
    The Treasury market will be closed on Wednesday for the
Christmas holiday.
    U.S. yields across most maturities hit session lows
following the five-year auction.
    The Treasury's $41 billion auction of five-year notes drew
strong demand and priced at 1.756%, well below the 1.772% yield
at the bid deadline. Tuesday's yield was the highest since July,
analysts said.
    Bids totaled $102.0 billion for a 2.49 bid-to-cover ratio,
consistent with the 2.50 cover last month, but slightly higher
than the 2.37 average. Indirect bidders, which includes
financial institutions and foreign central banks, accounted for 
62.4% of the bids, roughly in line with November's 64.8% and
higher than the 59.1% average.
    "The auction was surprisingly good and caught the market off
guard," said Lou Brien, market strategist at DRW Trading in
    Robust demand for U.S. 5-year notes lifted Treasury prices
on a day with scant volume, after trading weaker for most of the
New York morning session.
    "Maybe some people that were bidding on the auction laid
back a little bit," Brien said. "The surprising strength of the
auction made people think that they missed the boat, so they're
piling back into the market."
    In late-morning trading, U.S. 10-year yields
dropped to 1.915% from 1.935% on Monday, while those on U.S.
30-year bonds were at 2.343%, down from 2.362% on
    After the auction, U.S. 5-year note yields fell
to 1.734%, compared with Monday's 1.754%. 
    On the short end of the curve, U.S. two-year yields fell to
1.648%, from Monday's 1.657%, after earlier hitting a
two-week peak of 1.671%.
    The yield curve narrowly steepened on Tuesday, with the
spread between the two-year and 10-year note yields at 26.50
basis points. 
    The Treasury will next auction $32 billion in 7-year notes
on Thursday.
    "Look for a similar move on Thursday for the 7-year before
investors start to consider their year-end purchases on Friday
and December 30," said Jim Vogel, senior rates strategist at FHN
Financial in Memphis, Tennessee.
      December 24 Tuesday 10:57 AM New York/1557 GMT Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.55         1.582     -0.003
 Six-month bills               1.57         1.6089    0.003
 Two-year note                 99-245/256   1.6469    -0.010
 Three-year note               99-228/256   1.6628    -0.021
 Five-year note                98-234/256   1.7307    -0.023
 Seven-year note               98-146/256   1.8457    -0.020
 10-year note                  98-132/256   1.9154    -0.020
 30-year bond                  100-176/256  2.3428    -0.019
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap         7.50         0.50    
 U.S. 3-year dollar swap         4.00         1.00    
 U.S. 5-year dollar swap         0.25         0.50    
 U.S. 10-year dollar swap       -4.50         0.00    
 U.S. 30-year dollar swap      -29.25         0.25    
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Alex