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TREASURIES-Yields rise before seven-year auction

TREASURIES-Yields rise before seven-year auction

reuters.com · 12/29/2021 09:46
TREASURIES-Yields rise before seven-year auction

By Karen Brettell

- Long-dated U.S. Treasury yields rose on Wednesday before the Treasury is due to sell $56 billion in seven-year notes and as risk sentiment remained strong despite the rapid spread of the Omicron coronavirus variant.

“I think you have a little bit of illiquidity, and yields moving higher as you do have supply,” said Zachary Griffiths, a macro strategist at Wells Fargo in Charlotte, North Carolina.

The Treasury saw slightly soft demand for a $56 billion auction of two-year notes on Monday and a $57 billion sale of five-year notes on Tuesday. Both were hurt by illiquid conditions with many traders and investors out between the Christmas and New Year's holidays.

The Treasury will sell $56 billion in seven-year notes and $24 billion in two-year floating-rate notes on Wednesday.

Seven-year note yields US7YT=RR rose to 1.437%, up three basis points on the day, and the highest since Dec. 15. Benchmark 10-year yields US10YT=RR rose as high as 1.526%, the highest since Dec. 9., and 30-year yields US30YT=RR reached 1.957%, the highest since Nov. 24.

Two-year yields US2YT=RR, which are highly sensitive to interest rate moves, ebbed slightly after jumping to the highest since March 2020 on Tuesday. The yields were last at 0.750%.

The yield curve between two-year and 10-year notes US2US10=TWEB steepened to 77 basis points, after flattening to 71 points on Tuesday, the smallest yield gap since Nov. 23.

Investors are wary that bond yields will increase next year, with the Federal Reserve expected to begin raising rates as soon as May.

The large increase in Omicron cases adds some uncertainty over whether the U.S. economy will face further weakness from business shutdowns. However, so far, the variant appears to be milder than earlier ones and governments have not imposed the same kinds of restrictions as in early 2020.

The number of deaths from COVID-19 also appears to have stabilized and “the government response is not nearly as restrictive,” said Griffiths.

December 29 Wednesday 9:27AM New York / 1427 GMT


Price

Current Yield %

Net Change (bps)

Three-month bills US3MT=RR

0.05

0.0507

-0.010

Six-month bills US6MT=RR

0.19

0.1928

-0.013

Two-year note US2YT=RR

99-255/256

0.752

0.002

Three-year note US3YT=RR

100-12/256

0.9838

0.008

Five-year note US5YT=RR

99-216/256

1.2824

0.019

Seven-year note US7YT=RR

100-102/256

1.4392

0.032

10-year note US10YT=RR

98-152/256

1.5289

0.048

20-year bond US20YT=RR

100-76/256

1.9818

0.050

30-year bond US30YT=RR

98-72/256

1.9512

0.049





DOLLAR SWAP SPREADS




Last (bps)

Net Change (bps)


U.S. 2-year dollar swap spread

19.00

0.75


U.S. 3-year dollar swap spread

19.25

0.50


U.S. 5-year dollar swap spread

8.50

-1.50


U.S. 10-year dollar swap spread

6.75

0.00


U.S. 30-year dollar swap spread

-17.75

-0.25



(Editing by Bernadette Baum)

((karen.brettell@thomsonreuters.com))