November 10, 2017 / 8:36 PM / a month ago

TREASURIES-U.S. yield curve steepens; junk sector stabilizes

    * Junk bonds rebound after losses on doubts about tax cuts
    * U.S. longer-dated yields hit 1-1/2 week highs
    * U.S. 2-year yield sets nine-year peak
    * U.S. yield curve steepens from flattest in a decade

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, Nov 10 (Reuters) - U.S. Treasury yields rose on
Friday, steepening the yield curve,  as traders closed out some
curve-flattener positions and dealers reduced their holdings of
longer-dated debt following this week's auctions.
    Dealers sold their purchases from the $23 billion 10-year
and $15 billion 30-year auctions this week, which were part of
the government's $64 billion quarterly refunding, analysts said.
    Curve flatteners, in which traders favor longer-dated issues
over shorter-dated ones, have made longer-maturity Treasuries
expensive. The sell-offs in junk bonds and stocks have raised
concerns about stretched valuation across asset classes given
their impressive gains this year, traders and analysts said.
    The curve move coincided with some stabilization in the junk
bond sector, which had been battered in recent days, partly on
worries about a delay in U.S. federal tax cuts. Yield spreads
between short- and longer-dated Treasuries grew to their widest
in a week.
    "It's a reversal of the recent flattening and repositioning
along the curve," said Mike Lorizio, head of Treasuries trading
at Manulife Asset Management in Boston.
    The two biggest U.S.-listed junk bond exchange-traded funds
 by assets rose from seven-month lows hit on
Thursday. Still, they posted their biggest weekly loss in three
months. 
    The three major U.S. stock indexes
were flat to 0.1 percent lower on the day, off initial lows.

    The 10-year Treasury yield reached a 1-1/2 week
peak of 2.405 percent, after hitting a near three-week trough of
2.304 percent two days earlier.
    The two-year yield reached a nine-year high of
1.662 percent.  
    The yield spread between two-year and 10-year Treasuries
 widened to 74.0 basis points from a decade-tight
level of 65.9 basis points on Thursday, Reuters data showed.    
    Traders had favored curve flatteners the past two weeks on
concerns about the tax overhaul and a diminished likelihood of
an introduction of a Treasury bond that matures beyond 30 years.
Other factors were expectations that the Federal Reserve would
hike rates further and domestic inflation remaining below the
Fed's 2 percent goal.
    The Treasuries sell-off was exacerbated early on Friday by a
drop in German government debt prices, following 
perceived hawkish rhetoric from European Central Bank Council
member Ewald Nowotny.
    Nowotny said the ECB should have given a clear signal at its
policy meeting last month about ending its 2.55 trillion bond
purchase program in September 2018 if the euro zone economy
improves further.
  November 10 Friday 3:13PM New York / 2013 GMT
                               Price                  
 US T BONDS DEC7               152-10/32    -1-18/32  
 10YR TNotes DEC7              124-176/256  -0-128/2  
                                            56        
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.21         1.2304    -0.003
 Six-month bills               1.3375       1.3651    0.013
 Two-year note                 99-178/256   1.6582    0.025
 Three-year note               99-226/256   1.7903    0.035
 Five-year note                99-192/256   2.0532    0.050
 Seven-year note               99-236/256   2.2621    0.063
 10-year note                  98-172/256   2.4002    0.069
 30-year bond                  97-100/256   2.8805    0.075
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       74.00        3.55      
 30-year vs 5-year yield       82.70        2.30      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        20.00         0.50    
 spread                                               
 U.S. 3-year dollar swap        18.00         0.25    
 spread                                               
 U.S. 5-year dollar swap         6.25        -0.25    
 spread                                               
 U.S. 10-year dollar swap       -2.25         0.00    
 spread                                               
 U.S. 30-year dollar swap      -26.75         0.00    
 spread                                               
 
    
    

    
 (Reporting by Richard Leong; Editing by Dan Grebler and Rosalba
O'Brien)
  

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