January 28, 2020 / 7:27 PM / 22 days ago

TREASURIES-Yields bounce from 3-month lows as risk appetite improves

 (New throughout, updates prices, market activity and comments)
    * Three-month, 10-year yield curve briefly inverts
    * Yields get technical support at bottom of recent range
    * Treasury sells $32 bln in seven-year notes

    By Karen Brettell
    NEW YORK, Jan 28 (Reuters) - Benchmark 10-year Treasury
yields bounced off three-month lows on Tuesday, after a key part
of the yield curve briefly inverted for the first time since
October, as risk appetite improved even while investors kept
assessing the economic impact from a virus outbreak in China.
    The death toll from the virus topped 100 overnight and a
number of governments and multinational companies are
restricting travel to China.
    But stocks rose over 1% as a surge in Apple and other
technology stocks reflected improving risk appetite.
    Benchmark 10-year note yields fell as low as
1.57% overnight, the lowest since Oct. 10, before jumping back
to 1.65%.
    Yields likely bounced off lows as they hit technical support
at the bottom of their recent range, said Subadra Rajappa, head
of U.S. rates strategy at Societe Generale in New York.
    “I think this might just be us reaching some technical
points where it’s really hard to break through the 1.60% level,”
Rajappa said.
    The 10-year yields have dropped from a high of 1.76% on
Friday as fears about the spreading virus hit risk assets and
increased demand for safe-haven bonds.
    The yield curve between three-month notes and 10-year
government bonds briefly inverted to -0.015 basis point
,, its lowest since October, before
returning to 7 basis points.
    An inverted curve, when longer-dated yields fall below
shorter-maturity ones, has been a fairly reliable signal that a
U.S. recession will follow one to two years later. 
    It inverted last March for the first time since the
financial crisis. 
    The moves in the yield curve this week, however, may be due
to heavy supply of short- and intermediate-dated notes, said
Gary Pollack, head of fixed-income trading at Deutsche Bank
Private Wealth Management in New York.
    "I would rather give it a couple of days, let the auctions
settle, and then reexamine the yield curve before I draw any
conclusions over whether it's signaling anything," Pollack said.
    The Treasury Department saw slightly soft demand for a $32
billion sale of seven-year notes on Tuesday, following a $40
billion auction of two-year notes and $41 billion sale of
five-year notes on Monday.

    Data on Tuesday showed new orders for key U.S.-made capital
goods dropped in December by the most in eight months and
shipments were weak.
    Other data showed consumer confidence surged to a five-month
high in January amid optimism over the labor market.

      January 28 Tuesday 2:18PM New York / 1918 GMT
                               Price        Current   Net Change
                                            Yield %   (bps)
 Three-month bills             1.54         1.5719    0.005
 Six-month bills               1.5375       1.5754    0.000
 Two-year note                 99-212/256   1.4625    0.028
 Three-year note               100-38/256   1.4486    0.035
 Five-year note                99-134/256   1.4742    0.037
 Seven-year note               101-48/256   1.5682    0.042
 10-year note                  100-228/256  1.651     0.046
 30-year bond                  105-228/256  2.1077    0.053
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap         5.75         1.25    
 U.S. 3-year dollar swap         2.00         0.00    
 U.S. 5-year dollar swap        -0.50         0.25    
 U.S. 10-year dollar swap       -5.50         0.50    
 U.S. 30-year dollar swap      -32.00         0.50    
 (Reporting by Karen Brettell; editing by Jonathan Oatis and
David Gregorio)
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