December 23, 2019 / 5:18 PM / a month ago

TREASURIES-U.S. yields edge higher ahead of 2-year note auction

    * U.S. durable goods data come in weaker than forecast
    * U.S. new home sales rebound, lifts yields
    * Markets focus on U.S. 2-year note auction

 (Recasts, adds 2-year note auction details, new comment,
updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Dec 23 (Reuters) - U.S. Treasury prices slipped,
pushing yields slightly higher, in generally thin trading on
Monday as investors sold government debt ahead of a two-year
note auction and as market participants squared up positions
going into year-end.
    The market this week is bracing for $113 billion in U.S.
note auctions that could cheapen rates, analysts said. The U.S.
Treasury will auction $40 billion in two-year notes on Monday,
$41 billion in 5-year notes on Tuesday, and $32 billion in
7-year notes on Thursday.
    Investors typically sell Treasuries ahead of an auction to
push the yield higher so they can buy them at a lower price, a
move typically called supply concession.
    "A lot of it is some concession for the supply ahead of the
auctions," said Justin Lederer, Treasury trader, at Cantor
Fitzgerald in New York. "It's not huge selling by any means, but
we'll see how the auctions go. December auctions are usually a
wild card."
    A weaker-than-expected U.S. durable goods report for
November pushed yields a little lower early in the session. The
details of the report, though, were not as soft as the headline
suggested, analysts said, lifting yields off their lows.
    U.S. orders for non-defense capital goods excluding
aircraft, a closely watched proxy for business spending plans,
edged up 0.1% last month, with the decline in orders for
machinery offsetting the surge in demand for electrical
equipment, appliances, and components.
    Overall, trading is expected to slow in the
holiday-shortened week, and ahead of the year-end.
    "It's going to be thin volume," said Stan Shipley,
fixed-income strategist at Evercore ISI in New York. "People
would want to lock in their positions over the next week or two.
You really don't want to destroy the good returns you have this
year by taking an outside bet."
    So far this year, the ICE Bank of America Merrill Lynch U.S.
Treasury Index, a gauge of the Treasury market's
performance, was up nearly 7%. 
    In midday trading, the yield on the U.S. 10-year note
 inched up to 1.922% from 1.917% late on Friday,
while U.S. 30-year bond yields were slightly up at
2.347% from 2.346% on Friday.
    Yields also edged higher after data showed U.S. new home
sales rebounded 1.3% to a seasonally adjusted annual rate of
719,000 units last month, lifted by gains in activity in the
Northeast and West regions.
    Ahead of the auction, U.S. two-year yields were up at 1.648%
, from Friday's 1.629%.
    The yield curve flattened for a second straight session on
Monday, with the spread between the two-year and 10-year note
yields falling to 27 basis points. Ahead of the
year-end, market participants sought to unwind steepening trades
put on over the last two weeks as U.S.-China trade concerns
eased with a preliminary deal on the horizon.
    
      December 23 Monday 11:50AM New York/1650 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.55         1.5817    0.003
 Six-month bills               1.56         1.5983    0.023
 Two-year note                 99-184/256   1.6481    0.019
 Three-year note               99-220/256   1.6736    0.014
 Five-year note                98-220/256   1.7422    0.013
 Seven-year note               98-128/256   1.8565    0.013
 10-year note                  98-112/256   1.9241    0.007
 30-year bond                  100-144/256  2.3487    0.003
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         7.00        -0.25    
 spread                                               
 U.S. 3-year dollar swap         3.25         0.25    
 spread                                               
 U.S. 5-year dollar swap        -0.25         0.25    
 spread                                               
 U.S. 10-year dollar swap       -4.75        -0.25    
 spread                                               
 U.S. 30-year dollar swap      -29.50        -0.50    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Dan Grebler
and Andrea Ricci)
  
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