November 13, 2017 / 4:36 PM / a year ago

TREASURIES-U.S. two-year yields touch 9-year high, curve flattening resumes

    By Gertrude Chavez-Dreyfuss
    NEW YORK, Nov 13 (Reuters) - U.S. Treasury two-year note
yields hit a fresh nine-year high on Monday as the yield curve
resumed its flattening and investors priced in a 25-basis point
interest rate hike by the Federal Reserve in December.
    A flat yield curve suggests the Fed was on course to hike
interest rates, while tepid inflation should cap longer-dated
    The yield gap between shorter-dated and longer-dated
Treasuries shrank on Monday, with the spread between five-year
and 30-year yields at 80.70 basis points.
    The spread between U.S. two-year note yields and U.S.
10-year notes also contracted to 71.70 basis points.

    On Friday, the yield curve steepened on technical factors
and dealers reduced their holdings of longer-dated debt
following this week's auctions.
    "The steepening last week was temporary because the
longer-term trend of flattening is very much intact," said
Subadra Rajappa, head of U.S. rates strategy at Societe Generale
in New York.
    Aside from rate hike expectations, the Treasury's posture
also contributed to the flatter curve, as the government
planned to finance much of next year' deficit through bills, and
avoided bringing longer-dated paper into the financing calendar,
according to Action Economics.
    Often flatter and especially inverted yield curves suggest
an incoming economic slowdown, although strategists were not
clear that is true in this case.
    In late-morning trading, the 10-year Treasury yield
 was at 2.393 percent from 2.4 percent late on
    The two-year yield hit a nine-year peak of 1.679
percent, up from 1.662 percent last Friday.
    November 13 Monday 11:19AM New York / 1619 GMT
 US T BONDS DEC7               152-14/32    0-4/32    
 10YR TNotes DEC7              124-172/256  -0-8/256  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.2075       1.2278    -0.002
 Six-month bills               1.345        1.3728    0.010
 Two-year note                 99-170/256   1.6747    0.013
 Three-year note               99-216/256   1.8037    0.016
 Five-year note                99-178/256   2.0649    0.010
 Seven-year note               99-228/256   2.267     0.005
 10-year note                  98-176/256   2.3984    -0.002
 30-year bond                  97-152/256   2.8702    -0.010
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        20.00         0.25    
 U.S. 3-year dollar swap        18.25         0.50    
 U.S. 5-year dollar swap         6.50         0.25    
 U.S. 10-year dollar swap       -2.00         0.25    
 U.S. 30-year dollar swap      -26.00         0.75    
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Jeffrey
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