November 16, 2017 / 4:25 PM / 25 days ago

TREASURIES-U.S. two-year yields hit 9-year high; curve flattest in 10 years

    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.
    "This morning's economic data were neutral to OK, as opposed
to scary that may in any way indicate that the U.S. economy was
overheating," said Jim Vogel, interest rates strategist at FTN
Financial in Memphis, Tennessee.
    U.S. industrial output rose 0.9 percent, a
higher-than-expected rise in October as industries affected by
recent hurricanes resumed normal operations. 
    Apart from that, U.S. jobless claims data, while increasing
in the latest week, showed a firmer underlying trend.

    The reports 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 difference in five-year and 30-year yields narrowed to
72.4 basis points, the flattest since December
2011.
    A flat yield curve reflects expectations of further interest
rate increases. 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.
   In late morning trading, the 10-year Treasury yield
 rose to 2.350 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.
    U.S. 30-year bond yields rose to 2.791 percent,
from Wednesday's 2.781 percent.
    
      November 16 Thursday 11:06AM New York / 1606 GMT
                               Price                  
 US T BONDS DEC7               153-27/32    -0-5/32   
 10YR TNotes DEC7              124-232/256  -0-36/25  
                                            6         
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.2425       1.2637    0.008
 Six-month bills               1.375        1.4038    0.016
 Two-year note                 99-152/256   1.7122    0.025
 Three-year note               99-200/256   1.8254    0.024
 Five-year note                99-180/256   2.0633    0.025
 Seven-year note               100-20/256   2.2377    0.020
 10-year note                  99-28/256    2.3505    0.016
 30-year bond                  99-48/256    2.7902    0.009
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        17.50         0.25    
 spread                                               
 U.S. 3-year dollar swap        16.50         0.25    
 spread                                               
 U.S. 5-year dollar swap         5.50         0.50    
 spread                                               
 U.S. 10-year dollar swap       -0.75         0.50    
 spread                                               
 U.S. 30-year dollar swap      -23.75         0.25    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Dan Grebler)
  

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