TREASURIES-U.S. yields flat to firmer as investors await Senate move on relief checks

  • 12/29/2020
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* Markets bet bill on $2,000 aid check will not pass in Senate * U.S. yield curve modestly steeper * U.S. 7-year note auction shows lackluster results (Recasts, adds comment, 7-year note auction results, updates prices) By Gertrude Chavez-Dreyfuss NEW YORK, Dec 29 (Reuters) - U.S. Treasury yields were little changed to slightly higher on Tuesday in choppy trading, on expectations that a heftier federal stimulus check was unlikely to get the nod in the Republican-led U.S. Senate. Legislation on a $2,000 stimulus check is in the Senate"s hands on Tuesday after President Donald Trump signed a $2.3 trillion pandemic aid and spending package on Sunday. Risk appetite ebbed during the latest hour, with yields turning lower for some maturities and shares on Wall Street retreating as investors digested comments from congressional leaders on the hotly debated stimulus. U.S. Senate Majority Leader Mitch McConnell said he objected to Senate Democratic leader Chuck Schumer"s call for the chamber to approve the $2,000 relief check by unanimous consent. McConnell also said the Senate will address the issue this week. "The wall among Senate Republicans to stick to $600 impact payments is cracking, but the majority leader could have the cement to hold it together," said Jim Vogel, senior rates strategist at FHN Financial in Memphis, Tennessee, in his latest research note. "Time is running out, maybe," he added. As this developed, the Treasury"s U.S. 7-year note auction showed tepid results, weighed down by the increase in auction size, and in line with the underwhelming outcomes for the 2-year and 5-year offerings on Monday. The high yield was at 0.662%, slightly higher than the "when-issued" or expected level of around 0.660% at the bid deadline, which meant investors demanded a little more yield to own the paper. There were $136.6 billion in bids for a 2.31 bid-to-cover ratio, a gauge of demand. That ratio was lower than last month"s 2.37 and the 2.47 average, according to analysts. Indirect bidders, which include foreign central banks, took 60.3% of supply, lower than November"s 65.4% uptake, and the 63.1% average. The U.S. yield curve, meanwhile, was slightly steeper on the day, with the overall steepening trend still intact amid increased risk appetite trending the last few sessions, as well as expectations of higher inflation. The yield spread between 2-year and 10-year notes was at 80.4 basis. Last week, that curve hit its widest in more than three years. Since late July, the gap between U.S. 2-year and 10-year yields has widened by roughly 50 basis points. In early afternoon trading, the U.S. benchmark 10-year yield was flat at 0.934%, from 0.933% late on Monday. Post-auction, U.S. 7-year note yields were last down at 0.645%, from 0.648% on Monday. U.S. 30-year yields rose to 1.675% from Monday"s 1.669%. On the front end of the curve, U.S. 2-year yields inched lower to 0.128% from 0.133% on Monday. Breakeven rates on 10-year TIPS, which measure expected annual inflation for the next 10 years, slipped to 1.962%, from Monday"s 1.967%. December 29 Tuesday 1:52PM New York / 1852 GMT Price Current Net Yield % Change (bps) Three-month bills 0.095 0.0963 -0.005 Six-month bills 0.1 0.1014 -0.003 Two-year note 99-254/256 0.1289 -0.004 Three-year note 99-220/256 0.1727 0.000 Five-year note 99-254/256 0.3766 -0.003 Seven-year note 99-220/256 0.6458 -0.002 10-year note 99-112/256 0.9347 0.002 20-year bond 98-100/256 1.4686 0.008 30-year bond 98-216/256 1.6743 0.005 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 7.75 -0.25 spread U.S. 3-year dollar swap 7.75 0.00 spread U.S. 5-year dollar swap 7.00 -1.00 spread U.S. 10-year dollar swap 1.00 0.00 spread U.S. 30-year dollar swap -24.75 0.50 spread (Reporting by Gertrude Chavez-Dreyfuss; Editing by Dan Grebler)

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