December 29, 2017 / 2:09 PM / a year ago

TREASURIES-Bonds steady before New Year, busy data week ahead

    * Busy week of data expected in the new year
    * Five-year yields have largest annual increase since 2013
    * Bond market to close early before New Year's Day holiday

    By Karen Brettell
    NEW YORK, Dec 29 (Reuters) - Most U.S. Treasuries were
little changed on Friday with many investors and traders out
ahead of Monday’s New Year's Day  holiday, before a heavy week
of data due in the new year.
    Trading volumes have been light this week, with the market
focused mostly on $88 billion in new short and
intermediate-dated supply, which was sold to mostly below
average demand.                                       
    The economic calendar was light this week, though data next
week will include numerous manufacturing and service sector
releases in addition to the employment report for December.
    The data and any news around efforts by the Trump
administration to boost growth will be evaluated for their
outlook for the economy and how many rate increases are likely
during the year.
    “Next week will be very busy,” analysts at NatWest Markets
wrote in a note on Friday. “There is a ton of top tier data out
as well as the potential for political news if Trump kicks the
year off with a strong drive for infrastructure spending.” 
    Short- and intermediate-dated notes, which are highly
sensitive to interest rate increases, have underperformed this
year as investors priced in expectations of improving economic
    Five-year note yields            are on track for their
largest annual increase since 2013 with a 16 percent rise to
2.23 percent.  
    Two-year note yields            have risen 58 percent during
the year, their largest increase since 2014, to 1.90 percent.
    The yield curve between two-year and 10-year notes
               fell to 50 basis points on Wednesday, the
flattest level since Oct. 2007.
    The Federal Reserve has indicated that an additional three
increases are likely next year, though interest rate futures
traders are pricing in only two.
    The U.S. central bank will release minutes from its December
meeting, when it raised rates for the third time this year, on
    An uptick in Treasury supply, which is expected to initially
be concentrated in bills and shorter-dated notes, is also a key
focus for investors as the U.S. Treasury makes up for declining
bond purchases by the Fed.
    The bond market will close early on Friday at 2 p.m. EST
(1900 GMT) and will be closed on Monday for the New Year's Day

 (Reporting by Karen Brettell; Editing by Phil Berlowitz)
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