November 10, 2017 / 3:48 PM / a year ago

CORRECTED-TREASURIES-U.S. yields rise, eyes on junk sector sell-off

 (Corrects paragraph 10 to read "nine-year" not "nine-yield")
    * Traders cautious amid sell-off in stocks, junk bonds
    * U.S. longer-dated yields hit 1-1/2 week highs
    * U.S. 2-year yield hovers near nine-year peak

    By Richard Leong
    NEW YORK, Nov 10 (Reuters) - U.S. Treasury yields rose on
Friday, with two-year yields at a nine-year high as traders
closed out some curve-flattener positions and dealers reduced
their holdings of longer-dated debt following this week's
    Dealers sought to resell their purchases from the $23
billion 10-year and $15 billion 30-year auctions this week,
which were parts of the November quarterly refunding, analysts
    Curve flatteners, in which traders favor longer-dated issues
over shorter-dated ones, have made longer-maturity Treasuries
expensive as the sell-offs in junk bonds and stocks have raised
concerns about stretched valuation across asset classes given
their impressive gains this year, traders and analysts said.
    "These markets are ready for a correction," said Larry
Milstein, head of government and agency trading at R.W.
Pressprich & Co. in New York. 
    "So far, I'm not concerned. It's not a significant move
considering how much we had moved in yields and spreads,"
Milstein said of the high-yield market.
    Some analysts blamed uncertainty over the passage of a
proposal to overhaul the federal tax code for the losses in
risky assets this week.
    The two biggest U.S.-listed junk bond exchange-traded funds
 by assets stabilized on Friday, rebounding from
seven-month lows hit on Thursday.
    All three major U.S. stock indexes
were down about 0.2 percent in early trading.
    The 10-year Treasury yield reached a 1-1/2 week
peak of 2.382 percent after hitting a near three-week trough of
2.304 percent two days earlier.
    The two-year yield hovered at a nine-year high of
1.650 percent, which was up over 2 basis points on the day.  
    The yield spread between two-year and 10-year Treasuries
 widened to 72.1 basis points from a decade-tight
level of 65.9 basis points set on Thursday, Reuters data showed.
    Traders had favored longer-dated Treasuries over
shorter-dated issues the past two weeks on concerns about the
tax overhaul and a diminished likelihood of an introduction of a
Treasury bond that matures beyond 30 years.
    Expectations of further rate increases from the Federal
Reserve and domestic inflation remaining below the Fed's 2
percent goal made "curve-flattener" more appealing.
    The Treasuries sell-off was exacerbated early on Friday by
the drop in German government debt prices in the
wake of perceived hawkish rhetoric from a European Central Bank
    ECB Council member Ewald Nowotny said the ECB should have
given a clear signal at its policy meeting last month about
ending its 2.55 trillion bond purchase program in September 2018
if the euro zone economy improves further.
  November 10 Friday 10:32AM New York / 1532 GMT
 US T BONDS DEC7               152-21/32    -1-7/32   
 10YR TNotes DEC7              124-228/256  -0-76/25  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.215        1.2355    0.002
 Six-month bills               1.33         1.3574    0.005
 Two-year note                 99-180/256   1.6542    0.021
 Three-year note               99-236/256   1.7768    0.022
 Five-year note                99-212/256   2.0365    0.033
 Seven-year note               100-16/256   2.2402    0.041
 10-year note                  98-220/256   2.3788    0.048
 30-year bond                  97-192/256   2.8623    0.056
         YIELD CURVE           Last (bps)   Net       
 10-year vs 2-year yield       72.30        1.85      
 30-year vs 5-year yield       82.40        2.05      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        19.50         0.00    
 U.S. 3-year dollar swap        18.25         0.50    
 U.S. 5-year dollar swap         6.50         0.00    
 U.S. 10-year dollar swap       -2.25         0.00    
 U.S. 30-year dollar swap      -26.75         0.00    

 (Reporting by Richard Leong; Editing by Dan Grebler)
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