December 26, 2018 / 7:52 PM / 6 months ago

TREASURIES-U.S. yields rise on stock rebound, weak auction

    * U.S. sells $41 bln in 5-year notes to poor demand
    * U.S. 10-year yields fall to lowest since April before rise
    * Wall Street rally pares safe-haven bids for bonds
    * U.S. 2-to-10-year yield curve widest in three weeks

 (Updates market action, adds quotes)
    By Richard Leong
    NEW YORK, Dec 26 (Reuters) - U.S. Treasury yields rose on
Wednesday as Wall Street rebounded from its recent rout and weak
demand for $41 billion of five-year government debt supply
reduced the appeal of holding the securities.
    The benchmark S&P 500 index jumped 2.7 percent after
White House economic adviser Kevin Hassett said Federal Reserve
Chairman Jerome Powell's job was safe amid reports that
President Donald Trump had spoken of firing Powell.
    "People are looking for more consoling signs," said Craig
Bishop, lead strategist of U.S. fixed income strategies at RBC
Wealth Management in Minneapolis, referring to Hassett's
    The S&P tumbled 2.7 percent to a 20-month low on Monday,
also prompted by signs of slowing U.S. growth, anxiety about
tensions between China and the United States and the partial
U.S. government shutdown.
    In recent weeks, investors have piled into Treasuries, cash
and other low-risk assets. 
    Benchmark 10-year Treasury yields rose 3 basis
points at 2.785 percent after hitting 2.720 percent, the lowest
since April 2, earlier Wednesday.
    The gap between two-year and 10-year yields
grew to its widest in three weeks on bets the Fed might pause
its 2019 rate-hike campaign earlier than previously thought in
response to economic growth and the stock market losses.
    "We think the Fed is done. We are not expecting any rate
hikes in 2019," Bishop said.
    The two-year yield touched 2.540 percent earlier
Wednesday, the lowest since July 6, before rising to 2.599
percent, 1 basis point higher than late Monday.
    The gap between two-year and 10-year yields
expanded to 19.2 basis points, hovering at its widest in three
    Trading volume was light with many European markets
remaining closed after Christmas. U.S. financial markets
reopened after being shut for the holiday.
    The sharp decline in U.S. yields since November has reduced
the appeal of Treasuries among investors, who expected yields to
rise, stemming from the growing federal deficit after the
massive tax cut a year ago.
    The Treasury Department sold $41 billion of five-year debt
to tepid demand with the weakest bid-to-cover ratio, a gauge of
overall auction hunger, in about 9-1/2 years.

    The Treasury's $40 billion two-year note auction was also
met with soft demand.
    The government will sell $32 billion of seven-year
securities at 1 p.m. EST (1800 GMT) on Thursday.
   Wednesday, Dec. 26 at 1428 EST (1928 GMT):
 US T BONDS MAR9               144-29/32    -17/32    
 10YR TNotes MAR9              121-20/256   -11/32    
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             2.39         2.4379    -0.008
 Six-month bills               2.465        2.5308    -0.008
 Two-year note                 99-203/256   2.6069    0.019
 Three-year note               100-20/256   2.5973    0.027
 Five-year note                101-28/256   2.6331    0.049
 Seven-year note               101          2.7154    0.045
 10-year note                  102-228/256  2.7882    0.035
 30-year bond                  106-160/256  3.0361    0.033
         YIELD CURVE           Last (bps)   Net       
 10-year vs 2-year yield       17.90        0.00      
 30-year vs 5-year yield       40.20        -1.15     
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        13.50        -1.50    
 U.S. 3-year dollar swap         9.00        -1.25    
 U.S. 5-year dollar swap         6.25        -1.50    
 U.S. 10-year dollar swap        1.25        -0.75    
 U.S. 30-year dollar swap      -16.00        -1.50    

 (Reporting by Richard Leong
Editing by Jeffrey Benkoe)
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