December 22, 2017 / 7:28 PM / 6 months ago

TREASURIES-U.S. bond yields drift up ahead of debt auctions

    * U.S. bond market closes early, to stay shut on Christmas
    * U.S. yield curve set for biggest weekly steepening since
July
    * New home sales, consumer spending data suggest solid U.S.
growth
    * Short-to-medium dated supply next week add upward yield
pressure

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, Dec 22 (Reuters) - U.S. Treasury yields rose
modestly on Friday with benchmark 10-year yields staying below
their nine-month peak as investors moved to the sidelines before
Christmas and ahead of next week's supply of short-to-medium
term government debt.
    The yield curve, while mildly flatter on the day, was on
track for its largest weekly steepening since July after the
U.S. Congress approved the most sweeping change in the U.S. tax
code in 30 years on Wednesday. The tax plan has stoked
expectations of greater business investments and a $1.5 trillion
increase to the national debt in the next decade.
    "You are seeing pressure (on yields) led by two-years ahead
of next week's supply," said Justin Lederer, Treasury strategist
at Cantor Fitzgerald in New York.
    The Treasury Department will sell a combined $88 billion in
two-year, five-year and seven-year fixed-rate debt together with
$13 billion in two-year floating-rate notes, starting next
Tuesday.
    The U.S. bond market closed early at 2 p.m. (1900 GMT) and
will remain shut on Monday, Christmas Day. Many European markets
will stay idle through Tuesday.
    "Too many people are out. We are not going to have a lot of
people putting on big positions at year-end," said Ed
Al-Hussainy, senior interest rate and currency analyst at
Columbia Threadneedle in Minneapolis.
    Traders brushed off Friday's spate of domestic data on
durable goods orders, personal spending, new home sales and
consumer sentiment. Collectively, these latest figures pointed
to a solid pace of economic expansion in the fourth quarter even
before corporate and individual tax cuts go into effect in 2018.

    The 10-year Treasury yield was 2.486 percent, up
0.3 basis point on the day. It reached a nine-month high of
2.504 percent on Thursday.
    Two-year yield ended the week near its nine-year
high at 1.895 percent, up nearly 2 basis points from Thursday.
    The five-year yield touched 2.254 percent, which
was the highest since April 2011, Reuters data showed.
    The five-year to 30-year part of the yield curve
 was over 1 basis point flatter at 58 basis
points. It hit 51.9 basis points on Monday which was the
flattest since October 2007, Reuters and Tradeweb data showed.
    Traders and investors had piled into "curve flattener" bets
on expectations the Federal Reserve will raise short-term rates
further and long-term inflation would stay tame. 
    On the week, the gap between five-year and 30-year yields
grew by nearly 5 basis points, which was the biggest such move
since late July.
December 22 Friday 2:05PM New York / 1905 GMT
                               Price                  
 US T BONDS MAR8               151-5/32     -0-1/32   
 10YR TNotes MAR8              123-128/256  -0-4/256  
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.3125       1.3349    -0.018
 Six-month bills               1.505        1.5373    -0.003
 Two-year note                 99-186/256   1.8948    0.017
 Three-year note               99-156/256   2.0111    0.014
 Five-year note                98-214/256   2.2507    0.006
 Seven-year note               98-72/256    2.3956    0.001
 10-year note                  97-244/256   2.4846    0.002
 30-year bond                  98-84/256    2.8332    -0.001
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       58.60        -1.45     
 30-year vs 5-year yield       58.10        -1.45     
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        20.50         0.25    
 spread                                               
 U.S. 3-year dollar swap        18.75         0.25    
 spread                                               
 U.S. 5-year dollar swap         4.50         0.00    
 spread                                               
 U.S. 10-year dollar swap       -2.50        -0.75    
 spread                                               
 U.S. 30-year dollar swap      -22.25        -1.25    
 spread                                               
 
    

    
 (Reporting by Richard Leong; Editing by Grant McCool and Lisa
Shumaker)
  
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