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TREASURIES-U.S. long-dated yields advance to 4-month highs as more supply looms

    * U.S. 3-year note sale shows solid demand
    * U.S. yield curve steepens; spread widest since June
    * U.S. curve pricing more fiscal spending, Biden win

 (Adds new comment, 3-year auction results, updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Oct 6 (Reuters) - U.S. long-dated Treasury yields
climbed to four-month peaks on Tuesday as investors sold
government debt ahead of heavy supply this week and priced in
the prospect of a victory by Democratic challenger Joe Biden in
next month's U.S. presidential election.    
    The U.S. Treasury's record $52 billion auction of three-year
notes on Tuesday showed decent demand, even though the yield was
a little higher than what was expected at the bid deadline. 
    The Treasury will sell $35 billion in 10-year notes on
Wednesday and $23 billion 20-year bonds on Thursday, which
analysts said could be the true test of demand for U.S. debt. 
    U.S. 10-year, 20-year and 30-year yields rose to their
highest level since June, while the yield curve steepened again.
The spread of two-year and 10-year yields hit its widest since
June, while that between the five-year and 30-year reached 127
basis points, the largest gap since early June as well.
    By the afternoon session, the curve had flattened a bit.
    A steeper curve suggests expectations of higher growth and
inflation.
    "I think there is a lot of fundamentals out there that
support a steeper curve, whether that's increased issuance from
the Treasury, or increased supply as a whole," said Patrick
Leary, chief market strategist and senior trader, at Incapital.
    "The bigger issue is all the stimulus, all that pent-up U.S.
savings, which are at an all-time high right now. The amount of
spending that can be unleashed in this market is massive and
that can have a stimulative, growth, and inflationary effect,"
Leary added.
    The steeper curve continued to price in a Biden victory over
President Donald Trump in the Nov. 3 election, analysts said. A
victory for Biden and a Democratic sweep in Congress would mean
higher fiscal spending and more Treasury supply, said Jon Hill,
senior rates strategist, at BMO Capital in New York.
    Biden opened his widest lead in a month after Trump's
positive coronavirus test as a majority of Americans believed
the Republican president could have avoided the infection if he
had taken the virus more seriously, the latest Reuters/Ipsos
poll showed.
    In afternoon trading, U.S. 10-year yields rose
to 0.773%, from 0.762% late on Monday, after earlier rising to
0.792%, the highest level since June.
    Yields on U.S. 30-year bonds were at 1.585%, up
from 1.567% on Monday. Earlier, 30-year yields climbed to a
four-month peak of 1.61%.
    The yield curve steepened on Tuesday as well, with the
spread between the 10-year and two-year widening to as much as
64.5 basis points, the widest spread since June.
By the afternoon session, the spread had declined to 61.70 basis
points. 
    Treasury's sale of U.S. three-year notes on Tuesday was
solid given the record size, analysts said, with the
bid-to-cover ratio of 2.44 higher than 2.28 last month.

    
      October 6 Tuesday 2:40 PM New York / 1840 GMT Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.1          0.1014    0.002
 Six-month bills               0.115        0.1167    0.003
 Two-year note                 99-243/256   0.1507    0.006
 Three-year note               99-208/256   0.189     0.003
 Five-year note                99-154/256   0.3307    0.007
 Seven-year note               98-216/256   0.544     0.007
 10-year note                  98-152/256   0.7734    0.011
 20-year bond                  96-28/256    1.349     0.017
 30-year bond                  95-12/256    1.5838    0.017
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         8.25         0.25    
 spread                                               
 U.S. 3-year dollar swap         7.75         0.50    
 spread                                               
 U.S. 5-year dollar swap         6.50         0.00    
 spread                                               
 U.S. 10-year dollar swap        1.50         0.00    
 spread                                               
 U.S. 30-year dollar swap      -37.75        -0.25    
 spread (Reporting by Gertrude Chavez-Dreyfuss
Editing by Nick Zieminski and Will Dunham)
  
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