* U.S. 10-year note auction shows softer underlying metrics * U.S. yield curve steeper, spread widest in more than 2 years * Markets starting to re-price for higher U.S. yields (Adds new comment, U.S. 10-year auction results, updates prices) By Gertrude Chavez-Dreyfuss NEW YORK, Nov 10 (Reuters) - U.S. Treasury yields were flat to slightly higher on Tuesday, as the market consolidated the previous session's strong gains fueled by news of a potential coronavirus vaccine. For some analysts, the yield trend seems to have turned higher on the vaccine news and growing optimism about a stable U.S. recovery. The U.S yield curve steepened again on Tuesday, with the spread between two-year and 10-year notes rising as high as 78.5 basis points, the widest since February 2018. On Monday, Pfizer Inc said its experimental vaccine was more than 90% effective in preventing COVID-19 based on initial data from a large study. Ten- and 30-year yields hit eight-month highs on Monday, while two-year and 20-year yields climbed to five-month peaks. "There's a lot of positivity that should push yields higher. But is it too soon to judge this trend, as the vaccine is likely not available to most people until the middle of next year?" said Patrick Leary, chief market strategist and senior trader at broker-dealer Incapital. "Long term, the trend should continue for higher yields. But if we see 1.25% in the 10-year and we're still in this same wait-and-see mode and the economy is still sputtering dealing with COVID, you'll see the Federal Reserve talk yields lower, if not shift their purchases out the curve more," he added. Politics has taken a back seat in terms of the market's focus, with Democrat Joe Biden on Saturday securing the more than the 270 votes in the Electoral College needed to become U.S. president. Moody's Investors Service, in a note on Tuesday, warned however, that ongoing legal challenges to Biden's projected victory by Republican incumbent Donald Trump could unsettle markets and stir social tensions, which could have a material impact on the U.S. recovery. In early afternoon trading, U.S. 10-year Treasury yields edged up to 0.961% from 0.958% late on Monday. They hit 0.975% on Monday, the highest since March. U.S. 30-year yields were little changed at 1.75% , from Monday's 1.751%. They touched 1.767% on Monday, the highest level since March. On the front end of the curve, U.S. two-year yields were at 0.18%, from 0.183% on Monday, hitting their strongest level since June of 0.189% on Monday as well. Demand was lackluster for the Treasury's auction of $41 bln in 10-year notes on Tuesday. The high yield of 0.96% was in line with market expectations. The bid-to-cover ratio, a gauge of demand, was a tad softer at 2.32, compared with an average of 2.42. Indirect bidders, which include foreign central banks, took 54.8% of the total, compared with an average of 61.1%. November 10 Tuesday 1:31PM New York / 1831 GMT Price Current Net Yield % Change (bps) Three-month bills 0.095 0.0963 -0.005 Six-month bills 0.1025 0.104 -0.008 Two-year note 99-228/256 0.1807 -0.002 Three-year note 100 0.25 -0.003 Five-year note 99-2/256 0.4522 0.005 Seven-year note 98-138/256 0.7153 0.006 10-year note 96-220/256 0.963 0.005 20-year bond 93-56/256 1.5237 0.004 30-year bond 91-72/256 1.7522 0.001 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 7.75 0.50 spread U.S. 3-year dollar swap 6.25 -0.25 spread U.S. 5-year dollar swap 5.25 0.00 spread U.S. 10-year dollar swap 0.75 -0.25 spread U.S. 30-year dollar swap -34.50 -0.25 spread (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Ross Kerber in Boston; Editing by Nick Zieminski and Richard Chang)
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