November 21, 2017 / 2:24 PM / a year ago

TREASURIES-Yield curve flattest in a decade before Fed minutes on Wednesday

    * Release of Fed meeting minutes on Wednesday in focus
    * Trading volumes light before Thanksgiving holiday

    By Karen Brettell
    NEW YORK, Nov 21 (Reuters) - The U.S. Treasury yield curve
flattened to its lowest in a decade on Tuesday as investors
awaited minutes from the Federal Reserve’s last meeting, with no
major economic releases due this week and trading subdued before
the U.S. Thanksgiving holiday.
    The yield curve has flattened as investors price in the
expectation that the Fed will continue to raise rates while the
U.S. Treasury is also seen increasing debt issuance in short-
and intermediate-dated maturities, but delay large increases at
the back end.
    At the same time low inflation and global demand for yield
has supported longer-dated debt.
    “What you are generally seeing is that any time the curve
steepens people think it’s an opportunity to get into flatteners
again," said Subadra Rajappa, head of U.S. rates strategy at
Societe Generale in New York. "It’s been one consistent trade
that’s worked through 2017.” 
    Investors are seen as reluctant to take the other side of
the trade this week as volumes decline and with no major
catalysts to change direction ahead of the holiday on Thursday.
    Benchmark 10-year notes            were last up 4/32 in
price to yield 2.36 percent, down from 2.37 percent on Monday.
    The yield curve between two-year and 10-year notes
               flattened to 59 basis points, the lowest since
late 2007.
    The Fed’s meeting minutes due to be released on Wednesday
will be evaluated for any new indications that a rate hike is
likely in December.
    The U.S. central bank kept interest rates unchanged when it
concluded its two-day meeting on Nov. 1 and pointed to solid
U.S. economic growth and a strengthening labor market while
playing down the impact of recent hurricanes.             
    Interest rate futures traders are pricing in a 92 percent
chance of a December rate hike, according to the CME Group’s
FedWatch Tool.

 (Editing by Jeffrey Benkoe)
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