July 24, 2018 / 1:58 PM / 4 months ago

TREASURIES-Yields hold at five-week highs on central bank concerns

* Benchmark 10-year yields highest since June 14

* Treasury to sell $35 billion two-year notes

By Karen Brettell

NEW YORK, July 24 (Reuters) - Benchmark 10-year U.S. Treasury yields held at five-week highs on Tuesday as concerns that global central banks will be less accommodative weighed on bonds, and before the U.S. is due to sell $35 billion in new two-year notes.

The yield curve has steepened since Reuters reported on Friday that the Japanese central bank was discussing modifying its easing program, raising fears about reduced demand for government debt.

“That triggered the first wave of ‘bear steepening,’” said Subadra Rajappa, head of U.S. rates strategy at Societe Generale in New York. He was referring to when the long-term yields rise at a faster pace than shorter-term ones.

U.S. President Donald Trump’s comments criticizing Federal Reserve rate hikes have also added to the move.

Trump on Friday questioned the Fed’s expected pace of hikes in posts on Twitter, saying it takes away from the United States’ “big competitive edge.”

The U.S. yield curve has flattened as the Fed raises rates, pushing up yields on shorter-dated notes at a faster pace than longer-dated ones.

Some of the steepening since Friday, however, likely reflects an overdue pullback after 30 basis points of flattening since May.

“The pace of flattening seems to have gotten a little ahead of itself and in this cycle whenever that happens, you tend to see a little bit of a snap back and curve steepens out, and then when it gets comfortably steep people come back and pile into the flattener trade,” Rajappa said.

The yield curve between two-year and 10-year notes was little changed on the day at 32 basis points on Friday, up from a 10-year low of 23 basis points last Wednesday.

Benchmark 10-year notes were unchanged on the day to yield 2.965 percent, after earlier rising to 2.971 percent, the highest since June 14.

The Treasury Department will auction new two-year notes on Tuesday, the first sale of $101 billion in coupon-bearing supply this week. The U.S. will also sell $36 billion in five-year notes on Wednesday and $30 billion in seven-year notes on Thursday.

This week’s economic focus will be Friday’s U.S. gross domestic product reading for the second quarter, which will be evaluated for indications on how last year’s tax overhaul and recent trade tariffs are influencing growth. (Editing by Bernadette Baum) )

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