January 31, 2018 / 3:31 PM / a year ago

TREASURIES-U.S. yield curve flattens on refunding plan, month-end buying

 (Updates market action, adds quote, table)
    * U.S. leans on short-dated debt to fund growing deficit
    * ADP data show further improvement in U.S. labor market
    * Fed to release policy statement at 2 p.m. (1900 GMT)
    * Treasuries on track for worst month since Nov 2016

    By Richard Leong
    NEW YORK, Jan 31 (Reuters) - The margin on longer-dated U.S.
Treasury yields over short-dated ones shrank on Wednesday as the
government favored selling more short-dated debt than
longer-dated issue to finance the projected rise in its budget
    The yield curve also flattened on stepped up purchases on
longer-dated Treasuries at month-end as investors reallocated
money into fixed income from stocks in a month where the S&P 500
index is poised for its best month since March 2016.

    On the other hand, Treasuries have lost 1.42
percent in January, putting them for their worst monthly
performance since November 2016, according to an index compiled
by Bloomberg and Barclays.
    Longer-dated Treasury yields initially rose when the
government said it will increase the monthly auction size of
10-year and 30-year debt. They quickly retreated when traders
focused on faster increases in two-year and three-year
maturities versus the pickup in longer-dated supply.
    "They were more aggressively on the front-end than what
people had expected," said Tom Simons, money market strategist
at Jefferies & Co. in New York.     
    Meanwhile, traders were waiting for the Federal Reserve's
latest policy statement at 2 p.m. (1900 GMT) following the last
meeting for Janet Yellen, whose position as Fed chief will be
filled by Jerome Powell.
    Most analysts anticipated Fed policy-makers would stick to 
their median view for three rate increases in 2018 and may
upgrade their inflation outlook amid signs of faster global
    At 10:18 a.m. (1518 GMT), the spread between five-year and
30-year Treasury yield narrowed to 44 basis points, a couple of
basis points from the slimmest level in a decade set on Monday,
according to Tradeweb.
    Benchmark 10-year Treasury yield was down half a
 basis point at 2.720 percent, below a near four-year peak of
2.733 percent reached on Wednesday.
    Two-year yield was up nearly 2 basis points at
2.141 percent, which was below a nine-plus year peak of 2.161
percent set on Monday.
    On the data front, U.S. companies hired 234,000 workers in
January, more than the 185,000 projected by economists polled by
Reuters. The December figure was revised down to 242,000.
    The latest ADP data did not cause a stir in the bond market
as they reinforced the view of a labor market at or near full
employment which would support the Fed raising rates in March,
analysts said.
    Jan. 31 Wednesday 10:19AM New York / 1519 GMT
 US T BONDS MAR8               147-24/32    0-12/32   
 10YR TNotes MAR8              121-164/256  0         
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.435        1.4602    0.000
 Six-month bills               1.6275       1.6638    0.000
 Two-year note                 99-186/256   2.1406    0.017
 Three-year note               99-56/256    2.2749    0.017
 Five-year note                99-90/256    2.5139    0.007
 Seven-year note               99-8/256     2.6526    -0.002
 10-year note                  95-252/256   2.72      -0.005
 30-year bond                  95-228/256   2.9584    -0.022
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        19.25         0.25    
 U.S. 3-year dollar swap        18.75         0.00    
 U.S. 5-year dollar swap         7.75         0.75    
 U.S. 10-year dollar swap        2.50         0.75    
 U.S. 30-year dollar swap      -13.50         1.50    

 (Reporting by Richard Leong; Editing by Frances Kerry)
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