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TREASURIES-Yields rise after weak seven-year auction

TREASURIES-Yields rise after weak seven-year auction

reuters.com · 12/29/2021 15:31
TREASURIES-Yields rise after weak seven-year auction

Adds seven-year auction results, economic data, updates prices

By Karen Brettell

- Long-dated U.S. Treasury yields ended higher on Wednesday after the Treasury sold $56 billion in seven-year notes to weak demand and as risk sentiment remained strong despite the rapid spread of the Omicron coronavirus variant.

The seven-year notes sold at a high yield of 1.48%, around two basis points higher than where they had traded before the auction. nAQN09KOHW

The auction "was ugly and another poorly subscribed offering, leaving the Treasury 0-for-3 this week," Kim Rupert, managing director of global fixed income analysis at Action Economics, said in a note.

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

Seven-year note yields US7YT=RR rose as high as 1.472%, the highest since Dec. 9. Benchmark 10-year yields US10YT=RR reached 1.558%, the highest since Nov. 29., and 30-year yields US30YT=RR reached 1.971%, the highest since Nov. 24.

Two-year yields US2YT=RR, which are highly sensitive to interest rate moves, rose to 0.764%, the highest since March 2020.

The yield curve between two-year and 10-year notes US2US10=TWEB steepened to 75 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 appears to have stabilized and "the government response is not nearly as restrictive," said Zachary Griffiths, a macro strategist at Wells Fargo in Charlotte, North Carolina.

Data on Wednesday showed that contracts to buy U.S. previously owned homes fell unexpectedly in November as limited housing stock and lofty prices crimped activity. Separately the U.S. trade deficit in goods mushroomed to a record in November as imports surged and exports slipped. nL1N2TD0VD nL1N2TD0XM


December 29 Wednesday 3:00PM New York / 2000 GMT


Price

Current Yield %

Net Change (bps)

Three-month bills US3MT=RR

0.05

0.0507

-0.010

Six-month bills US6MT=RR

0.2

0.203

-0.003

Two-year note US2YT=RR

100

0.75

0.000

Three-year note US3YT=RR

100-14/256

0.9812

0.005

Five-year note US5YT=RR

99-200/256

1.2953

0.032

Seven-year note US7YT=RR

100-68/256

1.4594

0.052

10-year note US10YT=RR

98-116/256

1.5444

0.063

20-year bond US20YT=RR

100-28/256

1.9933

0.061

30-year bond US30YT=RR

98-40/256

1.9568

0.055





DOLLAR SWAP SPREADS




Last (bps)

Net Change (bps)


U.S. 2-year dollar swap spread

19.25

1.00


U.S. 3-year dollar swap spread

19.75

1.00


U.S. 5-year dollar swap spread

8.75

-1.25


U.S. 10-year dollar swap spread

6.75

0.00


U.S. 30-year dollar swap spread

-17.25

0.25



(Editing by Bernadette Baum and Diane Craft)

((karen.brettell@thomsonreuters.com))