October 24, 2017 / 8:15 PM / 7 months ago

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

    * 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
    * Report of John Taylor's Republican support as Fed chair
helps yield

 (Adds report on John Taylor, updates prices, table)
    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
    Yields also rose in late afternoon trading after a Bloomberg
report said that according to Republican Senator Tim Scott,
Stanford University economist John Taylor emerged as a winner
when President Donald Trump asked Senate Republicans on Tuesday
for a show of hands in support of potential nominees for
chairman of the Federal Reserve.  
   U.S. 30-year bond yields also rallied, climbing to a
three-month peak, following the Bloomberg report, while those on
two-year notes rose to a 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 11/32, yielding 2.417 percent, up from 
Monday's 2.375 percent. Earlier, 10-year yields rose to 2.424 
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-month high of 2.936
    U.S. two-year note yields hit 1.5890 percent, a
nine year high, following the Taylor report, up from 1.568
percent the previous session on Monday.

      October 24 Tuesday 3:55PM New York / 1955 GMT
 US T BONDS DEC7               151-20/32    -0-23/32  
 10YR TNotes DEC7              124-164/256  -0-72/25  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.1075       1.1261    0.028
 Six-month bills               1.2475       1.2729    0.008
 Two-year note                 99-154/256   1.5851    0.017
 Three-year note               99-182/256   1.7251    0.024
 Five-year note                99-56/256    2.0422    0.035
 Seven-year note               99-40/256    2.2571    0.034
 10-year note                  98-144/256   2.4153    0.040
 30-year bond                  96-144/256   2.9234    0.033
   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         7.25         0.00    
 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 James
Dalgleish and Diane Craft)
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