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TREASURIES-U.S. yields cling to gains after stimulus bill signed

Gertrude Chavez-Dreyfuss
·4 min read

* U.S. 2-year, 5-year note auctions show lackluster results * U.S. yield curve steepens, hits widest in 3 years last week (Adds new comment, auction results, updates prices) By Gertrude Chavez-Dreyfuss NEW YORK, Dec 28 (Reuters) - U.S. Treasury yields edged higher on Monday in a holiday-shortened week, as risk appetite rose with shares on Wall Street hitting record highs again after President Donald Trump signed into law overnight an additional coronavirus relief package. Financial markets were closed on Friday for Christmas day. U.S. yields have since come off their morning highs, however, with trading volume peaking a few hours ago. The yield curve steepened slightly on Monday, in line with the upbeat mood overall, with the bill signing news adding to positive developments around the world in the last few days that included COVID-19 vaccine rollouts and a Brexit trade deal. On Sunday, Trump signed a $2.3 trillion pandemic aid and spending package, retreating from his threat to block the bill. Democrats in the U.S. Congress on Monday will try to push through expanded $2,000 pandemic relief payments for Americans, which Trump had pushed for after the legislation was approved. "It's very quiet, volumes are light," said Justin Lederer, rates strategist, at Cantor Fitzgerald in New York. "The front end is going to be anchored here. We are going to hold these ranges in the near term." The U.S. two-year note auction was underwhelming, with analysts attributing the outcome to thin conditions as well as the increased auction size. The high yield was at 0.137%, a little higher than the expected or "when-issued" level of 0.135% at the bid deadline, suggesting investors want a bit more yield to hold the paper. There were $142.3 billion in bids for a 2.45 bid-to-cover ratio, a gauge of demand, lower than the 2.71 in November, and the last month and the 2.56 average. In afternoon trading, U.S. benchmark 10-year yields was little changed at 0.934% from 0.93% late on Thursday. Cantor's Lederer said a 1% yield on the 10-year is unlikely to happen this week given that all the positive news such as Brexit and the stimulus are out of the way. "I am not really sure what would take us to 1%. I think we hold at these levels," he added. U.S. 30-year yields climbed to 1.670% from Thursday's 1.666%. On the front end of the curve, U.S. two-year yields inched up to 0.125% from 0.121% on Thursday. The yield curve steepened, with the spread between the two-year and 10-year notes at 80.8 basis points. Last week, that curve hit its widest in more than three years. Breakeven rates on 10-year TIPS, which measure expected annual inflation for the next 10 years, were last at 1.967%, little changed from 1.968% on Thursday. The Treasury's $59-billion U.S. 5-year auction on Monday, meanwhile, was lackluster, with the high yield of 0.394% stopping above the expected rate at the bid deadline. Action Economics said it is one of the highest rates since March. There were $141.1 billion in bids for a 2.39 bid-to-cover ratio, from 2.38 in November, but below the 2.48 average. December 28 Monday 2:57PM New York / 1957 GMT Price Current Net Yield % Change (bps) Three-month bills 0.0925 0.0938 0.005 Six-month bills 0.1025 0.104 0.005 Two-year note 100 0.125 0.004 Three-year note 99-220/256 0.1726 0.003 Five-year note 100-12/256 0.3654 0.000 Seven-year note 99-216/256 0.6481 0.000 10-year note 99-116/256 0.9331 0.003 20-year bond 98-132/256 1.4613 0.002 30-year bond 98-248/256 1.6689 0.003 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 8.25 0.25 spread U.S. 3-year dollar swap 7.75 0.25 spread U.S. 5-year dollar swap 8.00 0.00 spread U.S. 10-year dollar swap 1.00 0.25 spread U.S. 30-year dollar swap -25.25 0.75 spread (Reporting by Gertrude Chavez-Dreyfuss; Editing by Jonathan Oatis and Nick Zieminski)