December 15, 2017 / 3:55 PM / a year ago

TREASURIES-U.S. yield curve hits flattest in a decade

    By Richard Leong
    NEW YORK, Dec 15 (Reuters) - The margin between U.S.
shorter-dated and longer-dated Treasury yields contracted to its
slimmest in a decade on Friday, based on traders' expectations
that the Federal Reserve would increase short-term interest
rates further and long-term inflation would stay tame.
    A wave of yield curve-flattening trades emerged after Fed
policymakers released their latest outlook on Wednesday and
projected three interest rate increases in 2018.
    Moreover, Fed Chair Janet Yellen said at her last news
conference as the head of the U.S. central bank that
policymakers had upgraded their U.S. growth forecasts but stuck
with their inflation view even as they considered a possible tax
cut from Washington.
    "That sparked the extra kicker for curve flatteners the last
couple of days," said Thomas Roth, head of U.S. Treasury trading
at MUFG Securities America in New York. "People are very
comfortable with holding long-dated paper."
    The yield spread between five-year and 30-year Treasuries
 narrowed earlier on Friday to 54.3 basis points,
a level last seen in October 2007. It later ticked up to 54.4
basis points, compared with 56.6 basis points on Thursday,
Reuters and Tradeweb data showed.
    The yield curve flattened during a mild selloff in U.S.
government debt as optimism about the passage of the federal tax
cuts helped push the S&P 500 stock index to a record
    At 10:44 a.m. (1544 GMT), the yield on benchmark 10-year
Treasury notes was 2.373 percent, up nearly 3 basis
points from late on Thursday.
    The two-year yield rose 3 basis points to 1.844
percent, just short of the more than nine-year peak of 1.852
percent set on Wednesday.
December 15 Friday 10:45AM New York / 1545 GMT
 US T BONDS MAR8               153-28/32    -0-7/32   
 10YR TNotes MAR8              124-76/256   -0-68/25  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.295        1.3171    0.002
 Six-month bills               1.45         1.4808    0.008
 Two-year note                 99-210/256   1.844     0.033
 Three-year note               99-198/256   1.9533    0.035
 Five-year note                99-54/256    2.1689    0.041
 Seven-year note               98-232/256   2.2961    0.034
 10-year note                  98-236/256   2.3726    0.027
 30-year bond                  100-192/256  2.7132    0.003
         YIELD CURVE           Last (bps)   Net       
 10-year vs 2-year yield       52.70        -0.70     
 30-year vs 5-year yield       54.30        -2.30     
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        18.50        -1.25    
 U.S. 3-year dollar swap        16.75        -0.75    
 U.S. 5-year dollar swap         4.50        -0.75    
 U.S. 10-year dollar swap       -1.75        -1.00    
 U.S. 30-year dollar swap      -21.50        -0.75    
 (Reporting by Richard Leong; Editing by Lisa Von Ahn)
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