* U.S. 10-year note auction shows softer underlying metrics * U.S. yield curve steeper, spread widest in more than 2 years * Markets starting to re-price for higher U.S. yields (Adds comment, updates prices) By Gertrude Chavez-Dreyfuss NEW YORK, Nov 10 (Reuters) - U.S. Treasury yields rose modestly on Tuesday, as the market consolidated the previous session's strong gains fueled by news of a potential coronavirus vaccine. For some analysts, the trend seems to be toward higher yields on the vaccine news and growing optimism about a stable U.S. recovery. The U.S yield curve, one gauge of risk appetite, steepened again on Tuesday, with the spread between two-year and 10-year notes rising as high as 78.5 basis points, the widest since February 2018. On Monday, Pfizer Inc said its experimental vaccine was more than 90% effective in preventing COVID-19 based on initial data from a large study. That pushed 10-year and 30-year yields to eight-month highs on Monday, and two-year and 20-year yields to five-month peaks. "Is it too soon to judge this trend (for higher yields), as the vaccine is likely not available to most people until the middle of next year?" said Patrick Leary, chief market strategist and senior trader at broker-dealer Incapital. "Long term, the trend should continue. But if we see 1.25% in the 10-year and we're still in this same wait-and-see mode and the economy is still sputtering dealing with COVID, you'll see the Federal Reserve talk yields lower, if not shift their purchases out the curve more," he added. Politics, meanwhile, has taken a back seat for now in terms of the market's focus, with Democrat Joe Biden on Saturday securing more than the 270 votes in the Electoral College needed to become U.S. president. Moody's Investors Service, in a note on Tuesday, warned however, that ongoing legal challenges to Biden's projected victory by Republican incumbent Donald Trump could unsettle markets and stir social tensions, which could have a material impact on the U.S. recovery. In late afternoon trading, U.S. 10-year Treasury yields edged up to 0.969% from 0.958% late on Monday. They hit 0.975% on Monday, the highest since March. U.S. 30-year yields were little changed were up at 1.758% , from Monday's 1.751%. They touched 1.767% on Monday, the highest level since March. On the front end of the curve, U.S. two-year yields inched up to 0.184%, from 0.183% on Monday, hitting their strongest level since June of 0.189% on Monday as well. Leslie Falconio, senior fixed income strategist at UBS Global Wealth Management, cautioned against further pushing rates higher. "As we head into winter months, with the potential of rising COVID-19 fears and a long road ahead on the approval and widespread dissemination of a vaccine, we expect investors to start adding 10-year Treasury near the upper end of the range for short-term protection," Falconio said in a research note. Tuesday's Treasury's auction of $41 bln in 10-year notes showed lackluster demand. The high yield of 0.96% was in line with market expectations. But the bid-to-cover ratio, a gauge of demand, was a tad softer at 2.32, compared with an average of 2.42. Indirect bidders, which include foreign central banks, took 54.8% of the total, compared with an average of 61.1%. November 10 Tuesday 3:03PM New York / 2003 GMT Price Current Net Yield % Change (bps) Three-month bills !Empty !Empty !Empty value value value Six-month bills !Empty !Empty !Empty value value value Two-year note 99-226/256 0.1847 0.002 Three-year note 99-250/256 0.2578 0.005 Five-year note 98-248/256 0.4602 0.013 Seven-year note 98-120/256 0.7258 0.017 10-year note 96-200/256 0.9715 0.013 20-year bond 93-32/256 1.5295 0.010 30-year bond 91-28/256 1.7601 0.009 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 7.75 0.50 spread U.S. 3-year dollar swap 6.00 -0.50 spread U.S. 5-year dollar swap 5.25 0.00 spread U.S. 10-year dollar swap 0.75 -0.25 spread U.S. 30-year dollar swap -34.50 -0.25 spread (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Ross Kerber in Boston; Editing by Nick Zieminski and Richard Chang)
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