December 24, 2019 / 6:56 PM / a month ago

TREASURIES-U.S. prices gain 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 
    * 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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