November 1, 2017 / 7:02 PM / a year ago

TREASURIES-Yields fall as U.S. Treasury holds auction sizes steady

 (Adds Fed statement, quote, updates prices)
    * Debt ceiling seen as complicating ability to raise funds
    * US five-year, 30-year yield curve flattest since 2007
    * Fed leaves rates unchanged

    By Karen Brettell
    NEW YORK, Nov 1 (Reuters) - U.S. Treasury yields fell on
Wednesday and the yield curve was its flattest since 2007 after
the Treasury Department said it would keep auction sizes steady
in the coming months, despite the Federal Reserve's plan to
reduce its bond holdings.
    The government said it intended to announce changes in
February, which would depend on its fiscal projections.
    The Treasury Borrowing Advisory Committee (TBAC), which
advises the government on funding strategy, also said that
Treasury bills and two-year, three-year and five-year notes
could be appropriate maturities for increased issuance.
    "There has been a fairly significant move in the curve,
mainly because of the Treasury Borrowing Advisory Committee
announcement that they felt that Treasury should do more
financing in the front end," said Tom di Galoma, a managing
director at Seaport Global Holdings in New York.
    Some analysts had expected the Treasury to indicate it would
increase issuance of longer-dated debt.
    Benchmark 10-year note yields             fell to 2.37
percent, from 2.40 percent before the announcement.
    The yield curve between five-year notes and 30-year bonds
               flattened to as low as 82.7 basis points, a level
last seen in late 2007.
    The Treasury will need to increase auction sizes due to the
Fed's declining participation in the market and the widening
U.S. deficit. But the suspension of the country's debt limit is
due to expire on Dec. 8, which is seen as complicating the
government's ability to increase debt levels in the near-term.
    "There is so much uncertainty around Dec. 8 and whether they
will get a debt ceiling hike," said Aaron Kohli, an interest
rate strategist at BMO Capital Markets in New York.
    The Fed kept interest rates unchanged on Wednesday, as
expected, and pointed to solid U.S. economic growth and a
strengthening labor market while playing down the impact of
recent hurricanes.             
    The ADP National Employment Report also showed that private
employers hired 235,000 workers in October, the most in seven
    Investors shifted focus to the government's jobs report for
October due on Friday.
    Republicans in the U.S. House of Representatives are due to
release long-awaited tax legislation on Thursday, after delaying
its introduction by one day.             
    U.S. President Donald Trump is also expected to announce his
choice for new Fed chair on Thursday, with news reports
indicating that Federal Reserve Governor Jerome Powell would
likely to get the nomination.             

 (Editing by Bernadette Baum and Richard Chang)
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