December 21, 2017 / 7:52 PM / 10 months ago

TREASURIES-U.S. yield curve flattens as market stabilizes after selloff

    * U.S. yield curve flattens a tad after sharp steepening
    * Two-year yields hit nine-year high
    * GDP, jobless claims data suggest steady U.S. growth
    * U.S. sells $14 bln five-year TIPS to strong demand

 (Adds quote, updates market action)
    By Richard Leong and Kate Duguid
    NEW YORK, Dec 21 (Reuters) - The U.S. yield curve flattened
on Thursday with 10-year yields falling from a nine-month peak
as bargain-minded investors emerged, providing a respite from a
sharp three-day bond market selloff tied to a sweeping U.S. tax
    The most dramatic overhaul of the U.S. tax code in 30 years,
which Congress approved on Wednesday, had stoked a selloff the
previous three days as traders expected the proposed tax cuts to
corporations and wealthy individuals would boost economic growth
and pile on at least $1 trillion to the national debt in 10
    That view of faster growth and a higher federal debt load
hit longer-dated bonds especially hard, this week steepening the
yield curve that had reached its flattest level in a decade.
    "The downward pressure on long-end yields has been taken off
with the passage of the tax bill," said Larry Milstein, head of
government and agency trading at R.W. Pressprich & Co in New
York. "People are nibbling a bit here," he said of Thursday's
mild bargain hunting.
    At 2:26 p.m. (1926 GMT) the 10-year Treasury yield
 was 2.482 percent, down 1 basis point from late on
Wednesday after touching a nine-month high of 2.504 percent
earlier on Thursday.
    A tick up in shorter-dated Treasuries also contributed to
the flattening. The two-year yield rose from Wednesday's close
at 1.861 percent to 1.878 percent, its highest level since
October 2008. The five-year hit 2.252 percent, its highest level
since April 2011, up from 2.242 percent at Wednesday's close. 
    Solid economic data on Thursday supported expectations of
further rate increases from the Federal Reserve, pushing
shorter-dated yields higher. "With tax reform and more housing
(growth), they’re certainly going to have to raise their
estimates of where the Fed is going to be by the end of 2019,"
said Stan Shipley, a strategist at Evercore ISI in New York.  
    On Thursday, the government said the U.S. economy in the
third quarter grew at a 3.2 percent annualized pace, its
briskest in more than two years. The figure was slower than a
prior estimate of 3.3 percent.
    Domestic weekly jobless claims rose to 245,000 last week but
still suggested a firm labor market. 
    On the supply front, the government sold $14 billion of
five-year Treasury Inflation Protected Securities
 to brisk demand.
    Trading volume has been relatively light this week as some
traders and investors have already left for the Christmas
  Thursday, Dec. 21 at 1420 EST (1920 GMT):
 US T BONDS MAR8               151-2/32     0-16/32   
 10YR TNotes MAR8              123-132/256  0-16/256  
                               Price        Current   Net
                                            Yield     Change
                                            (pct)     (bps)
 Three-month bills             1.335        1.3581    -0.026
 Six-month bills               1.5075       1.5401    0.020
 Two-year note                 99-194/256   1.8775    0.017
 Three-year note               99-166/256   1.997     0.008
 Five-year note                98-218/256   2.2468    0.005
 Seven-year note               98-68/256    2.3977    -0.002
 10-year note                  97-244/256   2.4844    -0.013
 30-year bond                  98-44/256    2.8411    -0.034
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        20.75         0.00    
 U.S. 3-year dollar swap        18.75         1.00    
 U.S. 5-year dollar swap         4.50         0.00    
 U.S. 10-year dollar swap       -2.00         0.50    
 U.S. 30-year dollar swap      -21.25         1.25    

 (Reporting by Richard Leong and Kate Duguid
Editing by Chizu Nomiyama)
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