October 24, 2017 / 2:15 PM / a year ago

TREASURIES-U.S. 10-year yields hit 5-1/2-month highs as risk appetite rises

    By Gertrude Chavez-Dreyfuss
    NEW YORK, Oct 24 (Reuters) - U.S. benchmark 10-year Treasury
yields rose to their highest in more than five months on
Tuesday, in line with gains in the European bond market, with a
strong U.S. equity performance also adding to the overall risk
    U.S. 30-year bond yields also rallied, climbing to a
three-week peak, while those on two-year notes were near a
recent nine-year high. 
    "Some positive bounce in risk market appears to be the
proximate cause," Guy LeBas, chief fixed income strategist, at
Janney Montgomery Scott in Philadelphia, said.
    Wall Street's Dow Jones index touched a record high on
Tuesday. Strong earnings and optimism about U.S. President
Donald Trump's tax plans underpinned the Dow and S&P, which
closed at all-time highs on all five trading days last week. 
    U.S. Treasuries also took their cue from European government
bond yields, as those on German Bunds hit two-week peaks. Strong
business and bank lending surveys backed a growing view that the
European Central Bank will announce a reduction of its monthly
bond purchases on Thursday.
    Thursday's ECB monetary policy meeting has limited interest
in bonds, analysts said. 
    Investors are also looking to the U.S. Treasury's
$26-billion two-year note auction later on Tuesday.
    Action Economics said in its blog the two-year note may be
"cheap enough" to attract strong demand especially with the
Federal Reserve on a path to normalizing interest rates. 
    It added that wide spreads against European government bonds
and other sovereigns will be supportive of the two-year note
auction as well, with many sovereign bonds trading with negative
    In late morning trading, 10-year U.S. Treasury note prices
were down 7/32, yielding 2.4 percent, up from 
Monday's 2.375 percent. Earlier, 10-year yields rose to 2.414
percent, the highest since mid-May.
    "Trading around these levels in the 10-year tends to be
driven by technicals," Janney's LeBas said. "Markets seem to
have a date with 2.40 percent based on strikes and open
    The 30-year bond prices fell 18/32, with a yield of 2.919 
percent, down from 2.89 percent late on Monday.
Thirty-year yields had risen to a three-week high of 2.931
    Ahead of the auction, U.S. two-year note yields were at
1.576 percent, up from 1.568 percent the previous
session. On Monday, two-year hit a nine-year peak of 1.5890
      October 24 Tuesday 9:54AM New York / 1354 GMT
 US T BONDS DEC7               151-25/32    -0-18/32  
 10YR TNotes DEC7              124-188/256  -0-48/25  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.1075       1.1261    0.028
 Six-month bills               1.25         1.2754    0.010
 Two-year note                 99-158/256   1.5769    0.009
 Three-year note               99-190/256   1.7143    0.013
 Five-year note                99-74/256    2.0271    0.020
 Seven-year note               99-60/256    2.2448    0.022
 10-year note                  98-176/256   2.4008    0.026
 30-year bond                  96-168/256   2.9186    0.029
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        23.50         0.50    
 U.S. 3-year dollar swap        22.00         0.25    
 U.S. 5-year dollar swap         7.00        -0.25    
 U.S. 10-year dollar swap       -3.00         0.00    
 U.S. 30-year dollar swap      -30.25         0.00    
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Chizu
Nomiyama and Susan Thomas)
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