November 28, 2017 / 4:02 PM / in 17 days

TREASURIES-U.S. yield curve steepens in much-needed respite

    By Gertrude Chavez-Dreyfuss
    NEW YORK, Nov 28 (Reuters) - The U.S. Treasury yield curve
steepened on Tuesday after hitting its flattest in a decade, in
what analysts viewed as a much-needed reprieve from months of
flattening, as investors awaited progress on U.S. tax reform.
    The yield curve has been on a flattening trend for most of
the year, as investors priced in an interest rate hike by the
Federal Reserve in December and a few more in 2018.
    "We see a steepening as a well-needed respite from the
torrid pace of flattening we've witnessed in the last few
weeks," said Ian Lyngen, head of U.S. rates strategy, at BMO
Capital Markets in New York.
    "At the very least, such a move could go some distance
towards shaking out overstretched momentum and setting up a
better entry point for what we view as a longer-term flattening
of the curve."
    The gap between U.S. two-year note and U.S. 10-year note
yields widened slightly on Tuesday to 58.30 basis points
, after contracting to its tightest since October
2007 on Monday. The gap was last at 57.50 basis points.
    The difference in five-year and 30-year yields rose to as
much as 72.80 basis points, the widest in a week.
The gap was last at 71.80 basis points. 
    Treasury yields briefly ticked higher after data showed a
surge in U.S. consumer confidence to a 17-year high.
 Inflation expectations, however, slipped again to
4.5 percent and are currently at the bottom of their recent
range.
    In mid-morning trading, the 10-year Treasury yield
 was down at 2.318 percent, from 2.328 percent late
on Monday.
    U.S. two-year yields, which climbed to a
nine-year peak last week, dipped to 1.742 percent, from 1.745
percent on Monday.
    U.S. 30-year bond yields edged lower to 2.763
percent, from Monday's 2.765 percent.
    The key event risk remains the U.S. Senate vote on tax
reform, expected on Friday, Lyngen said, which is likely to
result in a passage of the Senate's version of a tax bill.
    "Even if such a bill does pass, however, we're not likely to
see the final reconciliation of this bill pass in the year
unless the House adopts the Senate version," he said.
    The U.S. tax cut package headed toward new drama on Tuesday
in the Senate, where a pair of Republican lawmakers demanded
changes in exchange for their help in moving the measure
forward.
    
      November 28 Tuesday 10:42AM New York / 1542 GMT
                               Price                  
 US T BONDS DEC7               154-19/32    0-8/32    
 10YR TNotes DEC7              125-56/256   0-24/256  
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.28         1.302     0.046
 Six-month bills               1.425        1.4553    0.008
 Two-year note                 100-4/256    1.742     -0.003
 Three-year note               99-200/256   1.8261    -0.011
 Five-year note                99-206/256   2.0413    -0.006
 Seven-year note               100-80/256   2.2009    -0.012
 10-year note                  99-104/256   2.317     -0.011
 30-year bond                  99-196/256   2.7615    -0.004
                                                      
   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        18.25         0.50    
 spread                                               
 U.S. 5-year dollar swap         7.00         0.00    
 spread                                               
 U.S. 10-year dollar swap       -0.75         0.25    
 spread                                               
 U.S. 30-year dollar swap      -24.25        -0.50    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Meredith
Mazzilli)
  

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