November 6, 2017 / 2:56 PM / a year ago

TREASURIES-U.S. yield curve turns to flattest level in a decade

 (Updates market action, adds quote)
    * U.S. to sell $62 bln in coupon debt at November refunding
    * U.S. 10-year yield hits lowest level in two weeks

    By Richard Leong
    NEW YORK, Nov 6 (Reuters) - The gap between U.S. short-dated
and long-dated Treasury yields on Monday shrank to its tightest
levels in a decade as sluggish domestic inflation underpinned
demand for longer-maturity government bonds.
    High expectations the Federal Reserve would raise short-term
interest rates at its December policy meeting and uncertainty
over whether Republicans could pass their plan to change federal
tax codes have also flattened the yield curve.
    "The yield curve typically flattens with the Fed raising
rates. We also have decent growth and low inflation," said Eric
Stein, co-director of the global income group at Eaton Vance in
    The yield spread between two-year and 10-year Treasuries
broke just below 70 basis points, a level last seen
in November 2007, Reuters data showed.
    Monday's yield flattening was led by the fall in
longer-dated yields with the 30-year yield hitting its lowest
level since late September.
    At 9:39 a.m. (1415 GMT), the benchmark 10-year yield
 was down 1 basis point at 2.329 percent after
hitting its lowest level in two weeks, while the two-year yield
 was unchanged at 1.625 percent.
    The 30-year yield was 2.804 percent, down 2 basis
points from late Friday.
    Interest rates futures implied traders fully priced in a
quarter-point rate increase from the Fed at its Dec. 12-13
meeting, CME Group's FedWatch tool showed.
    The decline in bond yields was limited by the $62 billion in
coupon-bearing supply for sale this week. Proceeds from the sale
of the new debt would raise $19.3 billion in cash for the
government and refund $42.7 billion to Treasuries holders. 
    The Treasury Department will sell $24 billion in three-year
notes on Tuesday; $23 billion in 10-year debt
 on Wednesday and $15 billion in 30-year bonds
 on Thursday.
    Longer-dated yields have fallen in the aftermath of comments
last week from Treasury Secretary Steve Mnuchin who signaled
there is no pending plan for the government to introduce a long
issue that matures beyond 30 years, Stein said. 
November 6 Monday 9:37AM New York / 1437 GMT
 US T BONDS DEC7               154-2/32     0-13/32   
 10YR TNotes DEC7              125-76/256   0-36/256  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.1675       1.187     0.010
 Six-month bills               1.28         1.306     0.005
 Two-year note                 99-194/256   1.6247    0.000
 Three-year note               99-176/256   1.7345    -0.002
 Five-year note                100-8/256    1.9933    -0.012
 Seven-year note               100-108/256  2.1845    -0.014
 10-year note                  99-76/256    2.3307    -0.012
 30-year bond                  98-228/256   2.8051    -0.017
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        20.75        -0.50    
 U.S. 3-year dollar swap        20.25         0.00    
 U.S. 5-year dollar swap         7.50         0.50    
 U.S. 10-year dollar swap       -2.50        -0.25    
 U.S. 30-year dollar swap      -26.75        -0.50    

 (Reporting by Richard Leong; Editing by Susan Thomas)
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