November 26, 2019 / 7:24 PM / 16 days ago

TREASURIES-U.S. bonds rally with UK, solid demand for 5-year note sale

 (Adds data, auction results, updates prices)
    * Treasuries rally in line with gilts
    * Bonds briefly weaken on trade optimism
    * Treasury sells $41 bln five-year notes 

    By Karen Brettell
    NEW YORK, Nov 26 (Reuters) - U.S. Treasury yields fell
alongside British government debt on Tuesday, while expectations
that the Federal Reserve will keep rates on hold kept the yield
curve near its flattest level in almost a month.
    U.S. bonds and British gilts rallied after British polls
showed the ruling Conservatives as runaway favorites to win the
Dec. 12 election with a pledge to implement Brexit and halt
3-1/2 years of political uncertainty.
    “As we’re getting closer to the (British) election there are
concerns about any spillover,” said Justin Lederer, an interest
rate strategist at Cantor Fitzgerald in New York.
    Short-dated debt, meanwhile, has been supported by
expectations that the U.S. Fed will be on hold for the
intermediate term, after cutting rates three times this year.
    “Front-end rates continue to be parked here, given that
expectations are clear that the Fed’s going to be on hold,”
Lederer said.
    Fed Chairman Jerome Powell on Monday said that Fed officials
have a favorable outlook for the U.S. economy founded on strong
consumer spending, which is bolstered by a robust job market,
increasing incomes and solid consumer confidence.
    Data on Tuesday showed U.S. consumer confidence fell for a
fourth straight month in November amid worries about current
business conditions and employment prospects, but remained at
levels sufficient to support a steady pace of consumer spending.

    Benchmark 10-year note yields were last 1.741%,
down from 1.764% late Monday. The yield curve between two-year
and 10-year notes was 15 basis points, after
reaching 13 basis points on Monday, which was the flattest level
since Oct. 30.
    Month- and year-end portfolio rebalancing was also seen as
supporting demand for U.S. bonds.
    Treasury yields had risen overnight on fresh optimism that
the United States and China will reach a deal to deescalate
their trade war.
    China's Vice Premier Liu He, U.S. Trade representative
Robert Lighthizer and U.S. Treasury Secretary Steven Mnuchin
held a phone call on issues related to a phase one trade
agreement on Tuesday, China's commerce ministry said.

    The Treasury Department sold $41 billion in five-year notes
to solid demand on Tuesday, the second sale of $113 billion in
coupon-bearing supply this week.
    A $40-billion sale of two-year notes on Monday was also
strong. The government will auction $32 billion in seven-year
notes on Wednesday.
        November 26 Tuesday 2:14PM New York / 1914 GMT
                               Price        Current   Net Change
                                            Yield %   (bps)
 Three-month bills             1.5725       1.6008    0.004
 Six-month bills               1.5775       1.6166    0.000
 Two-year note                 99-213/256   1.5859    -0.019
 Three-year note               100-32/256   1.5816    -0.021
 Five-year note                99-136/256   1.5992    -0.017
 Seven-year note               99-152/256   1.6873    -0.016
 10-year note                  100-20/256   1.7414    -0.023
 30-year bond                  104-96/256   2.1755    -0.032
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap         0.75         1.75    
 U.S. 3-year dollar swap        -3.75         0.50    
 U.S. 5-year dollar swap        -6.00         0.50    
 U.S. 10-year dollar swap       -9.00         0.75    
 U.S. 30-year dollar swap      -35.25         1.00    
 (Editing by Kevin Liffey
Editing by Nick Zieminski)
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