November 27, 2017 / 9:23 PM / a year ago

TREASURIES-Yields edge lower in choppy trading; curve flattest in 10 years

 (Recasts, adds comment, auction results, updates prices, table)
    * U.S. yield curve flattens as investors price in hikes
    * U.S. auctions show soft results
    * North Korea report puts slight bid in bond market

    By Gertrude Chavez-Dreyfuss
    NEW YORK, Nov 27 (Reuters) - Treasury yields slipped on
Monday in choppy trading, partly dragged down by a combination
of a pullback on Wall Street after hitting record highs earlier,
plus reports that North Korea may be preparing for another
nuclear missile test.
    "Weakness in equities in general gave bonds a little bit of
a bid," said Kim Rupert, managing director of global fixed
income at Action Economics in San Francisco.
    The S&P 500 and the Nasdaq were down on the
day, with the Dow Jones Industrial Average pulling back
after earlier touching all-time peaks.
    Treasury prices, which move inversely to yields, rose as
well after reports North Korea might be looking to conduct
another missile test, Rupert said.
    Japan's Kyodo news agency reported that a Japanese diplomat
said there was a possibility of missile launches by North Korea
over the next few days, as part of its army's winter training
regime, according to traders.
    Reuters, however, was not able to verify the Kyodo report.
    Earlier, yields rose after data showed U.S. new home sales
surged to their highest in 10 years.
    U.S. 30-year bond yields rallied from a roughly 2-1/2 month
low after the data's release.
    The housing data further boosted the outlook for U.S.
interest rate increases. 
    The Federal Reserve has raised borrowing costs twice this
year and is widely anticipated to boost rates again next month.
It has forecast three rate hikes in 2018.
    Increased expectations for interest rate hikes have pushed
the yield curve to its flattest in a decade.
    The gap between U.S. 2-year note and U.S. 10-year note
yields contracted to 56.30 basis points, the
tightest since October 2007. The gap was last at 58.30 basis
    Also on Monday, the Treasury held two auctions -- the
$26-billion in two-year notes and $34 billion in five-year debt.
Both notes were poorly received by investors.
    The two-year offering showed higher yields of 1.765 percent
versus 1.763 percent expected at the bid deadline. Monday's
yield was the highest since September 2008.
    Treasury's five-year auction yield was 2.066 percent,
slightly higher than the expected yield at the bid deadline
which was 2.064 percent.
    In late trading, the 10-year Treasury yield was
down slightly at 2.333 percent, from 2.34 percent late on
    U.S. two-year yields were slightly off at 1.744
percent, from 1.748 percent on Friday. 
    U.S. 30-year bond yields rose to 2.770 percent,
from Friday's 2.761 percent. Earlier in the session, 30-year
yields touched 2.738 percent, the lowest since mid-November.
      November 27 Monday 4:06PM New York / 2106 GMT
 US T BONDS DEC7               154-8/32     0         
 10YR TNotes DEC7              125-20/256   0-28/256  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.23         1.2508    -0.020
 Six-month bills               1.4125       1.4421    -0.005
 Two-year note                 99-138/256   1.7446    -0.003
 Three-year note               99-192/256   1.837     -0.013
 Five-year note                99-196/256   2.0502    -0.015
 Seven-year note               100-52/256   2.2181    -0.015
 10-year note                  99-72/256    2.3312    -0.009
 30-year bond                  99-148/256   2.7708    0.010
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        17.50         0.00    
 U.S. 3-year dollar swap        17.50         0.00    
 U.S. 5-year dollar swap         6.75         0.00    
 U.S. 10-year dollar swap       -1.00        -0.75    
 U.S. 30-year dollar swap      -23.75        -2.00    
 (Reporting by Gertrude Chavez-; Editing by Dan Grebler and Lisa
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