October 24, 2017 / 7:00 PM / a year ago

TREASURIES-U.S. 10-year yields touch 5-1/2-month peaks as risk appetite grows

 (Adds auction results, analyst comment, updates prices, table)
    * U.S. stocks rally supports rise in yields
    * U.S. 2-year note auction comes in weaker than expected
    * Treasury to sell $34 bln in 5-year notes on Wednesday

    By Gertrude Chavez-Dreyfuss
    NEW YORK, Oct 24 (Reuters) - U.S. benchmark 10-year Treasury
note 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 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
    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 further limited
interest in bonds, analysts said. 
    Meanwhile, the Treasury's U.S. two-year note auction was
underwhelming. The note picked up a yield of 1.596 percent,
higher than that at the bid deadline. The yield was the highest
in nine years, suggesting lukewarm demand.
    There were $71.2 billion in bids for a 2.74 bid-to-cover
ratio, the lowest since March, and marginally below last month's
 2.88. Indirect bidders, which consist mostly of foreign central
banks, took 48.2 percent, slightly better than last month's 44.2
percent, but well below the mid-50s level seen in the first half
of 2017.
    "Not a whole lot of implications for the 5-year, but the
result was a bit softer than we expected," said Aaron Kohli,
rates strategist, at BMO Capital Markets in New York.
    Treasury will sell $34 billion in 5-year notes and $15
billion in 2-year floating rate notes on Wednesday.
    In afternoon trading, 10-year U.S. Treasury note prices were
down 9/32, yielding 2.408 percent, up from  Monday's
2.375 percent. Earlier, 10-year yields rose to 2.414 percent,
the highest since mid-May.
    U.S. 30-year bond prices fell 21/32, with a yield of 2.923 
percent, down from 2.89 percent late on Monday.
Thirty-year yields had risen to a three-week high of 2.931
    After 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 yields hit a nine-year peak of 1.589
      Tuesday, Oct. 24 at 1450 EDT (1850 GMT):
 US T BONDS DEC7               151-22/32    -0-21/32    
 10YR TNotes DEC7              124-188/256  -0-48/256   
                               Price        Current     Net
                                            yield       change
                                            (pct)       (bps)
 Three-month bills             1.1075       1.1261      0.028
 Six-month bills               1.2475       1.2729      0.008
 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                  98-168/256   2.4044      0.029
 30-year bond                  96-152/256   2.9218      0.032
   DOLLAR SWAP SPREADS                                  
                               Last (bps)   Net change  
 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         7.50         0.25      
 U.S. 10-year dollar swap       -2.50         0.50      
 U.S. 30-year dollar swap      -29.50         0.75      
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Susan Thomas
and James Dalgleish)
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