November 16, 2017 / 8:30 PM / a year ago

TREASURIES-U.S. two-year yield hit 9-year peak; curve flattest in 10 years

 (Adds comment, updates prices)
    * Yield curve flattens for 4 straight days
    * TIPS auction was soft as expected.

    By Gertrude Chavez-Dreyfuss
    NEW YORK, Nov 16 (Reuters) - U.S. Treasury two-year yields
hit a nine-year high on Thursday    as risk appetite recovered
globally and a batch of neutral to solid economic reports put
the Federal Reserve on track to raise interest rates in 2018.
    The rise in two-year yields pushed the curve to its flattest
in a decade. The yield curve has declined for four straight
    "This (flattening) is a reflection that the Fed is still
going ahead with raising rates even though inflation remains
quite low," said Lou Brien, market strategist at DRW Trading in
    The Federal Reserve has raised borrowing costs twice this
year and is expected to boost rates again next month. It has
forecast three rate hikes in 2018.
    A surge in U.S. industrial production in October, plus data
showing a firmer underlying trend in the labor market pushed
yields higher.
    The reports further helped flatten the yield curve.
    The gap between U.S. 2-year note and U.S. 10-year note
yields contracted to 63.2 basis points, the
tightest since November 2007. The gap was last at 65.1 basis
    The difference in five-year and 30-year yields narrowed to
72.4 basis points, the flattest since December
2011. It was last 74.1 basis points.
    On Thursday, Treasury held a 10-year TIPS auction. The
$11-billion 10-year TIPS reopening was soft as expected. 
    The note picked a higher-than-expected yield of 0.512
percent, compared with the 0.498 percent at the bid deadline.
That's the highest yield since January 2016's 0.725 percent.

    "Considering this is a TIPS auction, the result wasn't bad
but certainly softer than what we expected given the
fundamentals," said Aaron Kohli, rates strategist at BMO Capital
Markets in New York.
    In late trading, the 10-year Treasury yield rose
to 2.355 percent, from 2.335 percent late on Wednesday.
    U.S. two-year yields climbed to a nine-year peak
of 1.716 percent, from 1.691 percent on Wednesday. Two-year
yields were last at 1.712 percent.
    U.S. 30-year bond yields rose to 2.797 percent,
from Wednesday's 2.781 percent.
      November 16 Thursday 3:19PM New York / 2019 GMT
 US T BONDS DEC7               153-16/32    -0-16/32  
 10YR TNotes DEC7              124-220/256  -0-48/25  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.24         1.2611    0.005
 Six-month bills               1.3825       1.4115    0.023
 Two-year note                 99-152/256   1.7122    0.025
 Three-year note               99-202/256   1.8227    0.022
 Five-year note                99-178/256   2.0649    0.027
 Seven-year note               100-8/256    2.245     0.027
 10-year note                  99           2.3629    0.028
 30-year bond                  98-208/256   2.8088    0.028
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        17.75         0.50    
 U.S. 3-year dollar swap        17.00         0.75    
 U.S. 5-year dollar swap         6.00         1.00    
 U.S. 10-year dollar swap       -0.75         0.50    
 U.S. 30-year dollar swap      -23.50         0.50    
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Dan Grebler
and Susan Thomas)
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