December 19, 2017 / 9:00 PM / in 5 months

TREASURIES-U.S. yields jump as tax bill moves towards passage

    * House approves tax overhaul, Senate vote seen later
Tuesday
    * U.S. 2-year yield hits 9-year peak, 5-year at 6-1/2 year
high
    * U.S. yield curve steepens in bond market selloff
    * Housing starts reach 13-month peak in November

 (Updates market action, adds quote, graphic)
    By Richard Leong
    NEW YORK, Dec 19 (Reuters) - U.S. Treasury yields rose on
Tuesday with the benchmark yield hitting a seven-week high as
the biggest overhaul of the U.S. tax code in more than 30 years
appeared on track to become law by the end of the week.
    The U.S. House of Representatives approved the debt-financed
tax plan on Tuesday, sending the bill to the Senate, where
lawmakers were due to take up the package later in the evening.
President Donald Trump would then be expected to sign it shortly
after.    
    Republicans, who control both lawmaking chambers, said their
tax plan would boost consumer spending and business investments,
while independent government estimates showed the proposed tax
cuts would end up adding at least $1 trillion to the $20
trillion national debt in 10 years.
    "Obviously the tax bill is going to add to our already
increasing deficits over the next year," said John Canavan,
market strategist at Stone & McCarthy Research Associates in New
York. "The impact is going to be combined with the Fed’s
unwinding of the balance sheet."    
    Prior to the House vote, traders were selling bonds in
reaction to news that domestic home construction unexpectedly
accelerated to a seasonally adjusted annual rate of 1.297
million units, a 13-month high, in November. This supported the
view of a solid pace of economic expansion in the fourth
quarter.    
    Anticipation of bigger corporate profits from the tax
changes propelled the three major Wall Street indexes
 to all-time highs on Monday and reduced the
appeal of lower-yielding U.S. government bonds, analysts and
traders said.
    U.S. stock prices were marginally lower on Tuesday.
    The selloff in Treasuries also steepened the yield curve due
to profit-taking, reversing some of the flattening for a second
day. 
    "I think that what we’re seeing here primarily is just
position-squaring into year-end and taking some profits on the
curve-flattening that we’ve seen," Canavan said. 
    The gap between five-year and 30-year yields
widened to 59.6 basis points from Monday's 57.2 basis points. It
contracted to 51.9 basis points on Monday, the slimmest since
October 2007, Reuters and Tradeweb data showed.
    Benchmark 10-year Treasury yield was up 7 basis
points to 2.459 percent after hitting its highest since late
October.
    The two-year yield touched a nine-plus year peak
of 1.861 percent, while five-year yield reached 2.230
percent, which was the highest since April 2011.
  December 19 Tuesday 3:35PM New York / 2035 GMT
                               Price                  
 US T BONDS MAR8               151-20/32    -1-18/32  
 10YR TNotes MAR8              123-184/256  -0-132/2  
                                            56        
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.3625       1.3862    0.038
 Six-month bills               1.48         1.5119    0.031
 Two-year note                 99-204/256   1.8566    0.025
 Three-year note               99-180/256   1.9778    0.033
 Five-year note                98-250/256   2.2195    0.053
 Seven-year note               98-112/256   2.3702    0.066
 10-year note                  98-40/256    2.4608    0.069
 30-year bond                  98-160/256   2.8183    0.074
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       60.20        4.05      
 30-year vs 5-year yield       59.70        2.55      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        20.50         0.75    
 spread                                               
 U.S. 3-year dollar swap        18.00         1.00    
 spread                                               
 U.S. 5-year dollar swap         4.50        -0.25    
 spread                                               
 U.S. 10-year dollar swap       -2.00        -0.75    
 spread                                               
 U.S. 30-year dollar swap      -21.25        -1.25    
 spread                                               
 
    

    
 (Additional reporting from Kate Duguid; Editing by Phil
Berlowitz and Diane Craft)
  
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