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TREASURIES-U.S. long-dated yields rise to four-month highs ahead of supply

NEW YORK, Oct 6 (Reuters) - U.S. long-dated Treasury yields climbed to four-month peaks on Tuesday, as investors sold government debt ahead of heavy supply this week and focused on prospects for the passage of new coronavirus U.S. stimulus package.

The U.S. Treasury will see $110 billion in notes and bonds, launching a $52 billion auction of three-year notes later on Tuesday.

U.S. 10-year, 20-year, and 30-year yields rose to their highest level since June.

Ahead of Treasury supply, the yield curve steepened again, with the spread of two-year and 10 year hitting its widest since June. The gap between the five-year and 30-year was 127 basis points, the widest since early June as well.

“Generally to intermediate record auction sizes, the actual flow of bringing supply to market can cheapen bonds by a couple of basis points,” said Jon Hill, senior rates strategist, at BMO Capital in New York.

“In order to absorb tens of billions of dollars in auction supply, it has to become attractive for investors. Because the dealer community still has a heavy balance sheet, they may not bid as aggressively for these bonds,” he added.

Investors also looked to news about the stimulus package. House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin spoke by phone on Monday about fresh relief measures and were preparing to talk again on Tuesday.

Overall though, analysts said the stimulus plan will get done if not before the election, then certainly after.

In morning trading, U.S. 10-year yields to 0.781%, from 0.762% late on Monday, after earlier rising to 0.792%, the highest level since June.

Yields on U.S. 30-year bonds were at 1.596%, up from 1.567% on Monday. Earlier, 30-year yields climbed to a four-month peak of 1.607%.

The yield curve steepened on Monday as well, with the spread between the 10-year and two-year widening to as much as 64.5 basis points, the widest spread since June.

The steeper curve continued to price in a Joe Biden victory in the Nov. 3rd presidential election, analysts said. A victory for Biden and a Democrat sweep in Congress mean higher fiscal spending and more Treasury supply, said BMO’s Hill.

Biden opened his widest lead in a month in the U.S. presidential race after Trump’s positive coronavirus test as a majority of Americans believed the president could have avoided the infection if he had taken the virus more seriously, the latest Reuters/Ipsos poll showed. (Reporting by Gertrude Chavez-Dreyfuss Editing by Nick Zieminski)

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