December 27, 2017 / 2:27 PM / in a year

TREASURIES-U.S. Treasuries prices firm before 5-year note auction

    * Treasury to sell $34 billion 5-year notes
    * U.S. to auction $13 billion 2-year floating-rate notes
    * Two-year yields highest since October 2008

    By Karen Brettell
    NEW YORK, Dec 27 (Reuters) - U.S. Treasuries prices firmed
on Wednesday in light trading before the Treasury Department is
due to sell $34 billion in five-year notes, the second sale of
$88 billion in coupon-bearing supply this week.
    The United States sold $26 billion in two-year notes on
Tuesday to below-average demand. The ratio of bids to the amount
of two-year Treasuries offered              was 2.52, the lowest
reading in a year.             
    The five-year note sale is also expected to attract
relatively low demand with many traders and investors away after
Monday's Christmas holiday and before next Monday's New Year's
Day holiday.
    "It was a little bit softer yesterday, but that's typical
for year-end," said Gennadiy Goldberg, an interest rate
strategist at TD Securities in New York.
    The United States will also auction $28 billion in
seven-year notes on Thursday and sell $13 billion in two-year
floating-rate notes on Wednesday.
    Two-year Treasury yields            were last unchanged in
price to yield 1.915 percent, down from 1.923 percent on
Tuesday. The yields rose as high as 1.927 percent in overnight
trading, the highest since Oct. 14, 2008.
    Five-year notes            gained 2/32 in price to yield
2.227 percent, down from 2.237 percent on Tuesday. 
    Short- and intermediate-dated debt is highly sensitive to
interest rate hikes. The notes also have been under pressure
since October on expectations that the Treasury will increase
supply next year as the Federal Reserve reduces its bond
    "The two- to five-year space has been underperforming,
partly on the Fed and the expectations of hikes and partly on
expectations that supply's going to start to increase," Goldberg
    The Treasury is expected to initially concentrate supply
increases in Treasury bills and short- and intermediate-dated
    The Fed has indicated that an additional three increases are
likely next year, though interest rate futures traders are
pricing in only two.

 (Reporting by Karen Brettell; Editing by Will Dunham)
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