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TREASURIES-U.S. yield curve steepens as tax plan spurs borrowing concerns

* U.S. sells $28 bln seven-year notes to strong demand U.S. 10-year yield breaks above 200-day moving average

* U.S. 2-year yield subsides from near nine-year high

(Updates market action, adds quote) NEW YORK, Sept 28 (Reuters) - The yield spread between shorter and longer-dated U.S. Treasuries grew on Thursday in the aftermath of a tax plan that raised concerns about faster growth in the federal deficit and borrowing. The two-year Treasury yield reached a near nine-year high and the 10-year yield hit an 11-week peak before they retreated on bargain-hunting and strong demand at a $28 billion auction of seven-year notes, which was the final part of this week's $88 billon fixed-rate debt supply. "Much of the move has been about the tax rollout," said Bruno Braizinha, interest rate strategist at SG Corporate & Investment Banking in New York. "Based on recent history like healthcare reform, it may be a disappointment." On Wednesday, President Donald Trump proposed steep tax cuts for most Americans and businesses, but provided scant details on how to offset them without adding to the country's $20 trillion in national debt. The yield on 10-year Treasury notes was 2.309 percent, unchanged from Wednesday. It reached 2.359 percent earlier on Thursday, the highest since July 13, and traded above its 200-day moving average for the first time since Aug. 1, Reuters data showed. The two-year yield retreated from near nine-year highs tied to bets the Federal Reserve would raise short-term interest rates in December. It ended at 1.455 percent, down 2.7 basis points after hitting 1.499 percent earlier on Thursday, which was the highest since November 2008. On Tuesday, Fed Chair Janet Yellen said the U.S. central bank is on track to raise rates further even as inflation remains below its 2 percent goal. Federal funds futures implied traders saw a 73 percent chance the Fed would raise rates at its Dec. 12-13 policy meeting, lower than 78 percent late Wednesday, according to CME Group's FedWatch program. Proposed tax cuts from Washington in a bid to boost business activity and consumer spending is seen as one of the factors that could further steepen the U.S. yield curve in the coming months, analysts said. The spread between two-year and 10-year yields widened to as much as 87 basis points, which was last seen in Aug. 23, before finishing at 85 basis points. Possible rate increases or reduced bond purchases from other major foreign central banks may further stoke the rise in longer-dated bond yields faster than short-dated ones. "We are in a bear steepening environment over the next couple months," Braizinha said. September 28 Thursday 3:15PM New York / 1915 GMT Price

US T BONDS DEC7 152-23/32 -0-7/32 10YR TNotes DEC7 125-136/256 0-24/256 Price Current Net Yield % Change

(bps)

Three-month bills 1.04 1.0572 -0.008 Six-month bills 1.17 1.1933 -0.003 Two-year note 99-216/256 1.4547 -0.027 Three-year note 99-104/256 1.5809 -0.024 Five-year note 99-228/256 1.8981 -0.021 Seven-year note 98-96/256 2.1287 -0.009 10-year note 99-116/256 2.3121 0.003 30-year bond 97-152/256 2.8704 0.008

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 25.50 0.75

spread

U.S. 3-year dollar swap 23.50 0.00

spread

U.S. 5-year dollar swap 7.75 -0.25

spread

U.S. 10-year dollar swap -4.00 0.25

spread

U.S. 30-year dollar swap -32.75 0.50

spread

(Reporting by Richard Leong; Editing by Dan Grebler and Chizu Nomiyama)