December 30, 2019 / 8:00 PM / a month ago

TREASURIES-Yield curve steepest since October 2018

 (Updates prices)
    By Karen Brettell
    NEW YORK, Dec 30 (Reuters) - U.S. Treasury yields rose on
Monday and the U.S. two-year, 10-year yield curve was the
steepest in 14 months as investors prepared for the end of the
year.
    Benchmark 10-year yields held below recent highs of around
1.95%, after weakening this month on improving risk appetite
after the United States and China agreed to the first phase of a
trade deal.
    The yields were last at 1.90%. They have backed
up from 1.69% at the beginning of December and are up from a
three-year low of 1.43% reached on Sept. 3.
    Longer-dated notes underperformed shorter-dated debt,
sending the closely watched two-year, 10-year yield curve
 to its steepest level since October 2018 at 34
basis points.
    A major factor behind the relative stability in
shorter-dated notes is the Federal Reserve's daily operations to
provide liquidity to the repurchase (repo) agreement market,
where banks and investors borrow funds to finance asset
purchases and other expenses.
    The liquidity has helped to stave off a scramble for funds
over year-end, at least so far, which can send the cost of
borrowing significantly higher.
    "That’s anchoring the short end of the curve," said Jim
Vogel, an interest rate strategist at FHN Financial in Memphis,
Tennessee.
    The yield curve inverted in August, a signal that a
recession may be likely in the next one to two years.
    It has since steepened, however, on optimism the U.S.
economy will not slow as much as expected and on expectations
the Federal Reserve is unlikely to continue lowering its
benchmark interest rate, after cutting it three times this year.
    Trading volumes were light before Wednesday’s New Year's Day
holiday.

      December 30 Monday 2:46PM New York / 1946 GMT
    
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.5125       1.5433    -0.021
 Six-month bills               1.5475       1.5854    0.002
 Two-year note                 100-25/256   1.5752    -0.014
 Three-year note               100-18/256   1.6005    -0.003
 Five-year note                100-80/256   1.6846    0.007
 Seven-year note               99-152/256   1.812     0.014
 10-year note                  98-168/256   1.8998    0.027
 30-year bond                  100-140/256  2.3494    0.039
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        10.50         1.00    
 spread                                               
 U.S. 3-year dollar swap         6.50         1.00    
 spread                                               
 U.S. 5-year dollar swap         2.25         1.25    
 spread                                               
 U.S. 10-year dollar swap       -3.50         0.75    
 spread                                               
 U.S. 30-year dollar swap      -30.00        -0.25    
 spread                                               
 
 (Reporting by Karen Brettell
Editing by Chris Reese and Nick Zieminski)
  
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