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TREASURIES-Yields dip as Brexit deal seen priced in, U.S. stimulus in focus

Karen Brettell
·3 min read

(Adds quotes, Brexit deal, next week's auctions, updates prices) By Karen Brettell NEW YORK, Dec 24 (Reuters) - U.S. Treasury yields dropped in light trading on Thursday even as Britain clinched a deal to leave the European Union, as investors squared positions for year-end. Ten-year yields jumped and a key part of the yield curve hit its steepest level in more than three years on Wednesday as Britain appeared close to a trade deal to avert turbulent rupture on New Year's Day, almost a year after it formally exited the bloc. Bonds showed less reaction on Thursday after a deal was reached, with prices having already priced in the news. "Over the last couple of days this has been the expected result," said Lou Brien, a market strategist at DRW Trading in Chicago. "I think that we would have seen market reaction had they walked away.” Benchmark 10-year yields fell two basis points to 0.931%, after reaching a two-week high of 0.973% on Wednesday. The two-year, 10-year yield curve flattened one basis point to 81 basis points, after reaching 85 basis points on Wednesday, the steepest since October 2017. Longer-dated Treasury yields have risen and the yield curve has steepened on expectations that more fiscal spending and ultra loose Federal Reserve policy will spur higher inflation. Breakeven rates on 10-year TIPS, which measure expected annual inflation for the next decade, were last at 1.97%, after rising to 1.98% on Wednesday, the highest since at least early 2019. Investors are also focused on when more U.S. stimulus will be passed, after President Donald Trump threatened on Tuesday not to sign an $892 billion coronavirus bill, saying that sums to be paid to individuals were too small. U.S. lawmakers on Thursday blocked attempts to increase direct payments to Americans included in the bill from $600 to $2,000 per person. The Treasury will sell $176 billion in coupon-bearing supply next week, including $58 billion in two-year notes, $59 billion in five-year notes and $59 billion in seven-year notes. The bond market will close early at 2 p.m. EST on Thursday and close all day Friday for Christmas Day. December 24 Thursday 12:34PM New York / 1734 GMT Price Current Net Yield % Change (bps) Three-month bills 0.0875 0.0887 0.003 Six-month bills 0.0975 0.0989 0.003 Two-year note 100-2/256 0.1209 0.000 Three-year note 99-222/256 0.1699 -0.002 Five-year note 100-14/256 0.3638 -0.013 Seven-year note 99-214/256 0.6493 -0.015 10-year note 99-120/256 0.9314 -0.024 20-year bond 98-128/256 1.4622 -0.029 30-year bond 98-248/256 1.6689 -0.029 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 8.50 -0.25 spread U.S. 3-year dollar swap 8.00 0.00 spread U.S. 5-year dollar swap 7.75 0.25 spread U.S. 10-year dollar swap 0.50 0.00 spread U.S. 30-year dollar swap -26.00 0.25 spread (Reporting by Karen Brettell; Editing by Mark Heinrich and Dan Grebler)