December 26, 2018 / 9:50 PM / 8 months ago

TREASURIES-U.S. yields rise on weak auction, Wall Street surge

    * Medium- to long-dated yields log biggest jump since early
    * U.S. sells $41 bln in 5-year notes to poor demand
    * U.S. 10-year yields fall to lowest since April before rise
    * Wall Street rally pares safe-haven bids for bonds

 (Updates with late surge on Wall Street)
    By Richard Leong
    NEW YORK, Dec 26 (Reuters) - U.S. Treasury prices fell on
Wednesday, giving benchmark 10-year yields the biggest boost in
7-1/2 weeks as Wall Street staged a dramatic rebound from its
recent rout and investors were cool to $41 billion of five-year
Treasury supply.
    The benchmark S&P 500 index finished up nearly 5
percent, marking its biggest jump since March 2009, after White
House economic adviser Kevin Hassett said U.S. Federal Reserve
Chairman Jerome Powell's job was safe amid reports that
President Donald Trump had spoken of firing Powell.
    Upbeat news about year-end holiday shopping and a jump in
oil prices and bank shares also helped the stock market snap a
four-day losing streak.
    "People are looking for more consoling signs," said Craig
Bishop, lead strategist of U.S. fixed income strategies at RBC
Wealth Management in Minneapolis, referring to Hassett's
    The S&P tumbled 2.7 percent to a 20-month low on Monday,
also prompted by signs of slowing U.S. growth, anxiety about
U.S.-China tensions and the partial U.S. government shutdown.
    In recent weeks, investors have piled into Treasuries, cash
and other low-risk assets. 
    Benchmark 10-year Treasury yields hit 2.720
percent, the lowest since April 2, earlier Wednesday. They were
2.808 percent, up 5.5 basis points from Monday which its biggest
one-day increase since Nov. 2.
    The gap between two-year and 10-year yields
grew to its widest in three weeks on bets the Fed might pause
its 2019 rate-hike campaign earlier than previously thought in
response to economic growth and recent stock market losses.
    "We think the Fed is done. We are not expecting any rate
hikes in 2019," Bishop said.
    The two-year yield touched 2.540 percent earlier
Wednesday, the lowest since July 6, before rising to 2.621
percent, up 3 basis points from late Monday.
    The gap between two-year and 10-year yields
expanded to 19.2 basis points, the widest in three weeks.
    Trading volume was light with many European markets
remaining closed after Christmas. U.S. financial markets
reopened after being shut for the holiday.
    The sharp decline in U.S. yields since November has reduced
the appeal of Treasuries among investors, who expected yields to
rise, stemming from the growing federal deficit after the
massive tax cut a year ago.
    The Treasury Department sold $41 billion of five-year debt
to tepid demand with the weakest bid-to-cover ratio, a gauge of
overall auction hunger, in about 9-1/2 years.

    The Treasury's $40 billion two-year note auction was also
met with soft demand.
    The government will sell $32 billion of seven-year
securities at 1 p.m. EST (1800 GMT) on Thursday.
  December 26 Wednesday 4:47PM New York / 2147 GMT
 US T BONDS MAR9               144-17/32    -29/32    
 10YR TNotes MAR9              120-244/256  -15/32    
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             2.3825       2.4302    -0.016
 Six-month bills               2.47         2.536     -0.003
 Two-year note                 99-196/256   2.6211    0.033
 Three-year note               100-12/256   2.6083    0.038
 Five-year note                101-8/256    2.65      0.066
 Seven-year note               100-224/256  2.7353    0.065
 10-year note                  102-180/256  2.8097    0.057
 30-year bond                  106-8/256    3.0653    0.062
         YIELD CURVE           Last (bps)   Net       
 10-year vs 2-year yield       18.50        0.70      
 30-year vs 5-year yield       41.40        0.05      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        13.75        -1.25    
 U.S. 3-year dollar swap         9.25        -1.00    
 U.S. 5-year dollar swap         6.00        -1.75    
 U.S. 10-year dollar swap        1.25        -0.75    
 U.S. 30-year dollar swap      -16.00        -1.50    


 (Reporting by Richard Leong
Editing by Jeffrey Benkoe and Richard Chang)
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