* U.S. durable goods data weaker than forecast
* U.S. new home sales rise, lift yields
* U.S. 2-year note auction draws weak demand
(Recasts, adds U.S. auction results, updates prices)
By Gertrude Chavez-Dreyfuss
NEW YORK, Dec 23 (Reuters) - U.S. Treasury prices fell,
pushing yields higher, in thin trading on Monday as increased
risk appetite boosted shares on Wall Street to record highs on
more trade optimism and after a lackluster U.S. two-year note
auction.
U.S. yields tracked equities higher, although their rise was
much more modest than that of stocks. Equities were bolstered
after President Donald Trump over the weekend said the United
States and China would "very shortly" sign their so-called Phase
1 trade pact, which was announced earlier this month.
A poorly received $40 billion two-year note auction also
weighed on Treasury prices, propelling yields higher. Treasury
prices had cheapened going into the auction.
There were about $92 billion in bids for a 2.30 bid-to-cover
ratio, the lowest since December 2008, reflecting weak demand.
The indirect bid, which includes bids from financial
institutions and foreign central banks, slid to 46.3%, compared
with 47.8% at the previous two-year note auction last month and
the 48.8% average.
Analysts said the tepid auction results were not a surprise
given the market's thin volume ahead of the holidays, but there
were some expectations of a better outcome given the sell-off in
Treasuries and the flattening of the yield curve.
"The rest of the curve sits comfortably in the range of the
last four sessions," said Jim Vogel, senior rates strategist at
FHN Financial in Memphis, Tennessee. "The sudden sell-off at the
longer end of the curve... was on very light volume."
The Treasury will next auction $41 billion in 5-year notes
on Tuesday, and $32 billion in 7-year notes on Thursday.
A weaker-than-expected U.S. durable goods report for
November pushed yields a little lower earlier in the session.
The details of the report, though, were not as soft as the
headline suggested, lifting yields off their lows.
Overall, trading is expected to slow this holiday-shortened
week as market participants square up positions going into
year-end.
"People would want to lock in their positions over the next
week or two," said Stan Shipley, fixed-income strategist at
Evercore ISI in New York. "You really don't want to destroy the
good returns you have this year by taking an outside bet."
So far this year, the ICE Bank of America Merrill Lynch U.S.
Treasury Index, a gauge of the market's performance,
is up nearly 7%.
In afternoon trading, U.S. 10-year yields rose
to 1.934% from 1.917% late on Friday, while those on U.S.
30-year bonds were at 2.362%, up from 2.346% on
Friday.
Yields also rose after data showed U.S. new home sales
rebounded 1.3% to a seasonally adjusted annual rate of 719,000
units last month.
Following the auction, U.S. two-year yields were up at
1.656%, from Friday's 1.629%.
The yield curve flattened for a second straight session on
Monday, with the spread between the two-year and 10-year note
yields narrowing to 27 basis points. Ahead of the
year-end, market participants sought to unwind steepening trades
put on over the last two weeks as U.S.-China trade concerns
eased.
December 23 Monday 3:07 PM New York/2007 GMT Price Current Net
Yield % Change
(bps)
Three-month bills 1.5425 1.574 -0.005
Six-month bills 1.56 1.5983 0.023
Two-year note 99-181/256 1.6543 0.025
Three-year note 99-214/256 1.6817 0.022
Five-year note 98-210/256 1.7505 0.021
Seven-year note 98-120/256 1.8613 0.017
10-year note 98-96/256 1.9312 0.014
30-year bond 100-92/256 2.3581 0.012
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 7.00 -0.25
spread
U.S. 3-year dollar swap 3.25 0.25
spread
U.S. 5-year dollar swap -0.25 0.25
spread
U.S. 10-year dollar swap -4.50 0.00
spread
U.S. 30-year dollar swap -29.50 -0.50
spread
(Reporting by Gertrude Chavez-Dreyfuss; Editing by Dan Grebler
and Andrea Ricci)
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