* 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 * Foreign demand for Treasuries weakened in 2019 -BMO (Adds new comment, updates prices) By Gertrude Chavez-Dreyfuss NEW YORK, Dec 24 (Reuters) - U.S. Treasury prices rose on Tuesday, pushing yields lower, bolstered by a strong U.S. five-year note auction in a light market ahead of the holidays. The Treasury market is 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 include 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 Chicago. Robust demand for U.S. 5-year notes lifted Treasury prices on a day with scant volume, after they were 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 early afternoon trading, U.S. 10-year yields dropped to 1.903% from 1.935% on Monday, while those on U.S. 30-year bonds were at 2.332%, down from 2.362% on Monday. After the auction, U.S. 5-year note yields fell to 1.714%, compared with Monday's 1.754%. On the short end of the curve, U.S. two-year yields fell to 1.629%, 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 27.4 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. One of BMO Capital Markets' main takeaways from this year's auctions was the erosion of bids from overseas investors, but which was more than offset by strong domestic demand. "The steady increase in allocation to domestic investment funds was the main driver of the good sponsorship – more than making up for the drop in an aggressive foreign bid," BMO said in a research note. December 24 Tuesday 1:33 PM New York/1833 GMT Price Current Net Yield % Change (bps) Three-month bills 1.5475 1.5795 -0.006 Six-month bills 1.57 1.6089 0.003 Two-year note 99-254/256 1.629 -0.028 Three-year note 99-242/256 1.6439 -0.040 Five-year note 99 1.7123 -0.042 Seven-year note 98-168/256 1.8323 -0.034 10-year note 98-156/256 1.9049 -0.030 30-year bond 100-224/256 2.3341 -0.028 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 8.25 1.25 spread U.S. 3-year dollar swap 5.00 2.00 spread U.S. 5-year dollar swap 0.50 0.75 spread U.S. 10-year dollar swap -4.50 0.00 spread U.S. 30-year dollar swap -29.25 0.25 spread (Reporting by Gertrude Chavez-Dreyfuss; Editing by Alex Richardson and Andrea Ricci)
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