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TREASURIES-U.S. yields rise, boosted by higher inflation view

·3 min read

By Gertrude Chavez-Dreyfuss NEW YORK, March 8 (Reuters) - U.S. Treasury yields advanced on Monday, with the belly of the curve leading the way, as investors continued to price in higher inflation and more upbeat U.S. economic prospects. The 5-year and 7-year note yields were up 4 basis points, while that of the benchmark 10-year note hit a near 13-month high. The U.S. yield curve was a little flatter on Monday, with the spread between 2-year and 10-year notes at 144.1 basis points, after hitting on Friday its steepest since September 2015. "Everybody is still concerned that inflation is on the rise. The signs are there for near-term inflation," said Ellis Phifer, a market strategist at Raymond James in Memphis, Tennessee. "I don't think it's a long-term inflation issue yet. But near-term, all the signs and pressures are there. And the only thing fighting against it a bit is the stronger dollar." The break-even inflation rate on 10-year Treasury Inflation Protected Securities, a gauge of expected annual inflation over the next 10 years, climbed to 2.26%, the highest since July 2014, from 2.235% last Friday. The breakeven rate was last 2.247%. Investors are also focused on this week's $120 billion auction of 3-, 10-, and 30-year Treasuries, especially after last week's soft auction and a horrible 7-year note sale that saw a spike in yields. "We will all watch the 10-year auction on March 10, that's going to be as important as the CPI data," said Thomas Costerg, senior economist at Pictet Wealth in Geneva. "I am a bit nervous because the Fed left for its blackout period without offering markets any strong signals. Given that we are in a bit of vacuum until March 17, we could see markets test the Fed a bit," he added. In morning trading, the U.S. benchmark 10-year yield rose to 1.590% from 1.554% late on Friday. U.S. 30-year yields rose to 2.295% from Friday's 2.288%, after sliding to a three-week low of 1.755%. U.S. 5-year note yields were up at 0.83%, while that of the 7-year note climbed to 1.263%. On the front end of the curve, U.S. 2-year yields were up at 0.15% from 0.141% on Friday. In the repurchase agreement market, the cost to borrow U.S. 10-year Treasuries averaged -2.91% on Monday, one dealer said, with demand for the benchmark note still overwhelming supply and investors further pricing further yield rises. It has gone negative for six straight sessions. The negative repo rate means some market participants were willing to pay interest on money lent to borrow the 10-year note. March 8 Monday 10:30AM New York / 1530 GMT Price Current Net Yield % Change (bps) Three-month bills 0.0425 0.0431 0.005 Six-month bills 0.06 0.0609 -0.002 Two-year note 99-243/256 0.1508 0.010 Three-year note 99-106/256 0.3255 0.019 Five-year note 98-96/256 0.8341 0.049 Seven-year note 99-16/256 1.2658 0.043 10-year note 95-196/256 1.5872 0.033 20-year bond 94-240/256 2.1897 0.012 30-year bond 91 2.2921 0.004 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 9.00 -0.50 spread U.S. 3-year dollar swap 11.25 0.00 spread U.S. 5-year dollar swap 8.75 -1.00 spread U.S. 10-year dollar swap 4.00 -0.50 spread U.S. 30-year dollar swap -26.00 0.00 spread (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Sujata Rao-Coverley in London; Editing by Jonathan Oatis)