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TREASURIES-U.S. yields fall with Europe, curve flattest in 10 years

* Treasury yields fell Tuesday morning on ECB bond report

* 5-year, 30-year spread hits lowest point in a decade

NEW YORK, Jan 16 (Reuters) - U.S. long-dated Treasury yields fell on Tuesday morning along with those of European bonds, after a Reuters report said the European Central Bank was not quite ready to end its bond-buying scheme at next week's meeting. "There's a pullback in (German) bund yields and we're seeing a little bit of that spill over to the U.S.," said Subadra Rajappa, head of U.S. rates strategy, at Societe Generale in New York. Long-dated U.S. yields earlier dropped to one-week lows, while those on two-year notes rose after hitting a more than nine-year high last Friday. At 2:55 p.m. (1955 GMT), benchmark yields were below Friday's close despite recouping some losses in midday trading. The ECB is unlikely to ditch a pledge to keep buying bonds at next week's meeting as policymakers need more time to assess the outlook for the economy and the euro, Reuters reported on Tuesday. Tuesday's intra-day yield moves may not be particularly meaningful. "It's overall a pretty low volatility day," said Thomas Simons, money market economist at Jefferies & Co in New York. "It's just that we're off (this morning's) highs," Simons continued. Also on Tuesday, the spread between five- and 30-year maturities hit its lowest point in over 10 years, sinking to 47.6 basis points. With this move, the U.S. yield curve resumed its flattening trend after steepening most of last week. The spread between yields of short- and long-dated maturities has compressed as investors price in the expectation that the Federal Reserve will continue to raise U.S. overnight interest rates, even as long-term inflation expectations have remained low. The rate futures market has priced in a more than 72 percent chance the Fed will raise interest rates at the March meeting, according to the CME's FedWatch. This week is light on data releases, so it's likely that the market will be focused on Washington. As the continuing resolution expires Friday, investors will be watching Congress to see if it can put together a funding bill in time to avoid a government shutdown. The market will also be watching Fed speeches this week. Of particular interest will be remarks on Friday from Vice Chair Randal Quarles, who has yet to make clear where he falls on the dove-hawk spectrum. In late afternoon trading, the benchmark 10-year Treasury yield slipped to 2.544 percent at 3:21 p.m. (2021 GMT), from 2.552 percent at Friday's close. U.S. two-year yields, meanwhile, were at 2.018 percent, above 2.002 percent on Friday.

January 16 Tuesday 3:24PM New York / 2024 GMT Price

US T BONDS MAR8 150-27/32 0-11/32 10YR TNotes MAR8 122-248/256 0-8/256 Price Current Net Yield % Change

(bps)

Three-month bills 1.4025 1.4267 -0.018 Six-month bills 1.565 1.599 -0.003 Two-year note 99-186/256 2.0183 0.016 Three-year note 99-164/256 2.1245 0.009 Five-year note 98-240/256 2.3534 0.005 Seven-year note 98-144/256 2.4762 -0.005 10-year note 97-120/256 2.5426 -0.009 30-year bond 98-96/256 2.8309 -0.022

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 19.75 ******

spread

U.S. 3-year dollar swap 19.25 ******

spread

U.S. 5-year dollar swap 5.25 ******

spread

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

spread

U.S. 30-year dollar swap -18.25 1.50

spread

(Reporting by Gertrude Chavez-Dreyfuss and Kate Duguid; Editing