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TREASURIES-Yields retrace dip as stocks recover, 20-year auction sees solid demand

Karen Brettell
·3 min read

(Adds 20-year auction results, quote, Johnson comments on Brexit, U.S. stimulus talks, updates prices) By Karen Brettell NEW YORK, Dec 21 (Reuters) - Benchmark Treasury yields were little changed on Monday, erasing an earlier dip, as investors shrugged off concerns about a new strain of COVID-19 in the United Kingdom, while demand was solid for the Treasury Department's $24 billion sale of 20-year bonds. The S&P 500 lost ground on Monday, but was well off its session lows. "Stocks have come back here. There was obviously a 'risk off' trade on the COVID headline," said Justin Lederer, an interest rate strategist at Cantor Fitzgerald in New York. Demand for safe-haven Treasuries had increased earlier on Monday as countries across the globe shut their borders to Britain due to fears about a highly infectious new coronavirus strain. Prime Minister Boris Johnson also cited problems with Brexit trade talks. Unless Johnson can strike a trade deal with the EU in the next 10 days, the United Kingdom will leave the bloc's informal membership on Dec. 31 at 2300 London time without one. Benchmark 10-year yields were little changed on the day at 0.936%, after earlier falling to 0.882%, the lowest since Dec. 11. The yields have ranged from 0.798% to 0.986% for the past 1-1/2 months. The Treasury saw solid demand for $24 billion in 20-year bonds, its final sale of long-dated debt this year. The debt sold at a high yield of 1.47%, around one basis point lower than where the bonds traded before the sale. The bid-to-cover ratio was average at 2.39 times. Longer-dated Treasury yields have risen and the yield curve has steepened as expectations of more fiscal spending, and the likelihood that the Federal Reserve will maintain its dovish monetary policies for years to come, lead investors to increase bets on higher inflation. The U.S. Congress on Monday was scrambling to pass a $900 billion coronavirus aid package, which fell short of hopes that a deal could be as large as $2 trillion. The White House-backed bill includes $600 payments to most Americans as well as additional payments to the millions of people thrown out of work during the COVID-19 pandemic, just as a larger round of benefits is due to expire on Saturday. The yield curve between two-year and 10-year notes was at 81 basis points on Monday, holding just below an almost three-year high of 83 basis points reached on Friday. Ten-year Treasury-Inflation-Protected-Securities (TIPS) are pricing in expectations of 1.95% average annual inflation for the coming decade, the highest since April 2019. Market liquidity is low and expected to decline with many traders out before Friday's Christmas holiday. The bond market will close early at 2 p.m. EST on Thursday and be closed on Friday for the Christmas Day. December 21 Monday 3:32PM New York / 2032 GMT Price Current Net Yield % Change (bps) Three-month bills 0.0875 0.0887 0.003 Two-year note 100-1/256 0.123 0.000 Three-year note 99-214/256 0.1802 0.000 Five-year note 99-250/256 0.3798 -0.001 Seven-year note 99-200/256 0.6573 -0.005 10-year note 99-108/256 0.9363 -0.012 20-year bond 98-80/256 1.4731 -0.020 30-year bond 98-208/256 1.6756 -0.024 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 7.00 0.25 spread U.S. 5-year dollar swap 6.75 0.25 spread U.S. 10-year dollar swap 0.00 0.25 spread U.S. 30-year dollar swap -27.25 0.25 spread (Reporting by Karen Brettell; Editing by Susan Fenton and Richard Chang)