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Bonds News

TREASURIES-Yields drop on short covering after strong 10-year auction

 (New throughout, updates prices and yields, market activity and
comments, adds 10-year auction results)
    By Karen Brettell and Herbert Lash
    NEW YORK, Jan 12 (Reuters) - U.S. Treasury yields traded
lower on Tuesday as strong demand for the Treasury Department's
$38 billion sale of benchmark 10-year notes had traders covering
short positions, which reversed  an early rise in yields.
    Yields had jumped about 20 basis points in the past week on
expectations that new fiscal stimulus will boost economic growth
and increase Treasury supply after Democrats won control of the
Senate.
    The notes sold at a high yield of 1.164%, almost a basis
point below where they had traded before the auction. Dealers
took a lower than average share of 20% of the debt, reflecting
strong investor demand.
    Investors now are waiting to see if demand will persist on
Wednesday at the sale of $24 billion in 30-year Treasury bonds.
    "I'm not surprised to not see a huge rally because we do
still have the 30-year to get through tomorrow," said Patrick
Leary, chief market strategist and senior trader at Incapital in
Minneapolis.
    Consolidation is likely at these levels, Leary said.
    "Maybe we trade as low as 1.07%, 1.05% before finding a
floor on the range, but then slowly move higher over the coming
months."
    The catalyst for jump in rates were the two elections in
Georgia last week, which sparked the return of a reflation
trade.
    "The Georgia Senate run-off elections really changed the
landscape for the outlook pretty significantly as there is now
potentially very significant additional stimulus," said Tom
Simons, money market economist at Jefferies in New York.
    President-elect Joe Biden said on Friday that he will
deliver a plan costing "trillions" of dollars on Thursday.
    The proposal includes relief for state and local governments
grappling with the pandemic, and new support for people who lost
their jobs or cannot afford rent. Biden also called for raising
the minimum wage to $15 and sending out $2,000 in direct cash
payments.
    Earlier, the yield on benchmark 10-year notes
reached 1.187%, the highest since March 20. The yield curve
between two-year and 10-year notes steepened to
103.40 basis points, the widest gap since May 2017, before
paring gains to trade at 99.10. 
    Thirty-year bond yields reached 1.915%, also the
highest since March 20.
    Five-year note yields jumped to 0.533%, the highest since
March 26, as investors prepared for the prospect that the Fed
could begin raising rates as soon as 2023. That would be earlier
 than previously expected. 
    
      January 12 Tuesday 9:31 AM New York / 1431 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.085        0.0862    -0.005
 Six-month bills               0.09         0.0913    0.000
 Two-year note                 99-244/256   0.1489    0.004
 Three-year note               99-168/256   0.24      0.006
 Five-year note                99-74/256    0.5202    0.022
 Seven-year note               98-108/256   0.8589    0.028
 10-year note                  97-84/256    1.1632    0.029
 20-year bond                  94-176/256   1.6913    0.015
 30-year bond                  94-16/256    1.8861    0.008
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         7.25         0.25    
 spread                                               
 U.S. 3-year dollar swap         6.50        -0.75    
 spread                                               
 U.S. 5-year dollar swap         7.25         0.00    
 spread                                               
 U.S. 10-year dollar swap        0.50         0.25    
 spread                                               
 U.S. 30-year dollar swap      -25.00         1.25    
 spread (Reporting by Karen Brettell and Herbert Lash; Editing by David
Gregorio)
  
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