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TREASURIES-Yields highest since March, stimulus and supply in focus

Karen Brettell and Herbert Lash
·3 min read

(Adds Fed speakers, three-year note auction results, updates prices) By Karen Brettell and Herbert Lash NEW YORK, Jan 11 (Reuters) - Benchmark Treasury yields rose to 10- month highs on Monday as investors adjusted for higher government spending under the Joe Biden administration and before the Treasury will sell new long-dated supply. U.S. President-elect Biden said on Friday that Americans need more economic relief from the coronavirus pandemic now and 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, as well as 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. Expectations of a multitrillion-dollar stimulus plan, the belief that the Federal Reserve will not push back on rising interest rates and new Treasury supply this week are helping yields to rise, said Gennadiy Goldberg, interest rate strategist at TD Securities in New York. Atlanta Federal Reserve bank President Raphael Bostic said on Monday he is not “super concerned” about the rise in 10-year yields, adding that it is not something the Fed needs to react to. It comes after Fed Vice Chair Richard Clarida said on Friday that he was not concerned about 10-year Treasury yields rising above 1%. Benchmark 10-year notes reached 1.138% on Monday, the highest since March 20. The yield curve between two-year and 10-year notes steepened to 99.9 basis points, the widest gap since July 2017. Investors have also begun pricing for the possibility that the Fed raises rates in 2023, sooner than previously expected. Eurodollar futures maturing in September 2023 on Monday are fully pricing in a 25-basis point hike by that time frame. The Treasury Department sold a record $58 billion in three-year notes on Monday to solid demand, the first sale of $120 billion in coupon-bearing supply this week. The debt sold at a high yield of 0.234%, only slightly above where it had trade before the auction. All eyes are on how much demand there will be for $38 billion in 10-year notes on Tuesday and $24 billion in 30-year bonds on Wednesday. While some investors may be a bit nervous after the 10-year broke above 1% last week, the auctions will likely be well absorbed and help nudge rates higher, said Goldberg. “We're of the view that you will probably still see some upside in rates in the near term,” he added. Breakeven rates on 10-year Treasury Inflation-Protected Securities < US10YTIP=RR> are trading at 2.06%, after reaching 2.10% on Friday. They broke above 2% on Jan. 4 for the first time since November 2018. January 11 Monday 3:17PM New York / 2017 GMT Price Current Net Yield % Change (bps) Three-month bills 0.085 0.0862 0.000 Six-month bills 0.09 0.0913 0.000 Two-year note 99-245/256 0.1469 0.010 Three-year note 99-182/256 0.2243 0.003 Five-year note 99-100/256 0.4994 0.020 Seven-year note 98-152/256 0.8332 0.030 10-year note 97-148/256 1.1358 0.029 20-year bond 94-224/256 1.6798 0.022 30-year bond 94-36/256 1.8825 0.020 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 6.75 -1.00 spread U.S. 3-year dollar swap 7.00 0.00 spread U.S. 5-year dollar swap 7.00 0.00 spread U.S. 10-year dollar swap 0.25 -0.50 spread U.S. 30-year dollar swap -26.25 0.00 spread (Reporting by Karen Brettell and Herbert Lash; editing by Jonathan Oatis)