* U.S. to sell $17 bln in 2-year FRN, $38 bln 5-year notes
* Fed widely seen raising interest rates at policy meeting
* U.S. 5-year yield touches highest level since June 2009
* U.S. 10-year, 30-year yields hit highest since May
By Richard Leong
NEW YORK, Sept 25 (Reuters) - U.S. Treasury yields climbed
on Tuesday, with the 10-year yield hitting a four-month peak in
advance of government debt supply and on bets about Federal
Reserve interest rate increases in the coming months.
The U.S. Treasury Department will sell $38 billion in
five-year debt at 1 p.m. EDT. (1700 GMT) It will auction $17
billion in two-year floating-rate notes and $40 billion in
one-month bills at 11:30 a.m. (1530 GMT)
The government has ramped up borrowing since February as the
deficit has grown following the massive tax cut enacted last
December and a federal spending deal inked in February.
Traders and analysts widely expect the U.S. central bank to
lift the target range on key overnight borrowing costs by a
quarter point at a two-day policy meeting that will begin
Tuesday.
Rates futures implied traders priced in an 80 percent chance
the Fed would raise rates again in December, CME
Group's FedWatch program showed.
Fed officials have signaled in recent days that the U.S.
economic expansion remains intact with inflation heading toward
their 2 percent goal, which would allow for more rate hikes in
coming months.
"We're seeing risks skewed hawkishly," said Blake Gwinn,
U.S. rates strategist at NatWest Markets in Stamford,
Connecticut. "People have been leaning short for the past
month."
Expectations of rate hikes has prompted many investors to
sell Treasuries, sending short-dated yields to their highest in
a decade. Still, Treasuries have drawn some support from worries
that global trade tensions might hurt the U.S. economy.
At 10:04 a.m. (1404 GMT), the benchmark 10-year Treasury
yield was 3.100 percent, up 2.2 basis points from
late on Monday. Its session high of 3.113 percent was its
highest since May, Reuters data showed.
The 30-year yield reached 3.249 percent, its
highest in four months.
Five-year yield touched 2.990 percent, which was
last seen in June 2009.
In "when-issued" activity, traders expected the latest
five-year note supply to sell at a yield of 2.983 percent
, which would be the highest yield at an auction
of this maturity in 10 years, according to Tradeweb.
"The auction will go okay given the move (in yield) we have
had," Gwinn said.
September 25 Tuesday 10:05AM New York / 1405 GMT
Price
US T BONDS DEC8 139-24/32 -16/32
10YR TNotes DEC8 118-112/256 -6/32
Price Current Net
Yield % Change
(bps)
Three-month bills 2.175 2.2175 0.000
Six-month bills 2.3175 2.3776 0.008
Two-year note 99-214/256 2.8351 0.008
Three-year note 99-138/256 2.9129 0.017
Five-year note 98-244/256 2.9797 0.021
Seven-year note 98-20/256 3.0597 0.023
10-year note 98-24/256 3.1001 0.022
30-year bond 95-124/256 3.2368 0.027
YIELD CURVE Last (bps) Net
Change
(bps)
10-year vs 2-year yield 26.30 -0.50
30-year vs 5-year yield 25.50 -0.10
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 16.75 0.25
spread
U.S. 3-year dollar swap 16.25 1.25
spread
U.S. 5-year dollar swap 12.75 1.00
spread
U.S. 10-year dollar swap 5.75 0.50
spread
U.S. 30-year dollar swap -6.75 0.50
spread
(Reporting by Richard Leong; Editing by David Gregorio)