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TREASURIES-U.S. yields rise on weak auction, Wall Street surge

Richard Leong

* Medium- to long-dated yields log biggest jump since early Nov

* U.S. sells $41 bln in 5-year notes to poor demand

* U.S. 10-year yields fall to lowest since April before rise

* Wall Street rally pares safe-haven bids for bonds

(Updates with late surge on Wall Street) NEW YORK, Dec 26 (Reuters) - U.S. Treasury prices fell on Wednesday, giving benchmark 10-year yields the biggest boost in 7-1/2 weeks as Wall Street staged a dramatic rebound from its recent rout and investors were cool to $41 billion of five-year Treasury supply. The benchmark S&P 500 index finished up nearly 5 percent, marking its biggest jump since March 2009, after White House economic adviser Kevin Hassett said U.S. Federal Reserve Chairman Jerome Powell's job was safe amid reports that President Donald Trump had spoken of firing Powell. Upbeat news about year-end holiday shopping and a jump in oil prices and bank shares also helped the stock market snap a four-day losing streak. "People are looking for more consoling signs," said Craig Bishop, lead strategist of U.S. fixed income strategies at RBC Wealth Management in Minneapolis, referring to Hassett's comments. The S&P tumbled 2.7 percent to a 20-month low on Monday, also prompted by signs of slowing U.S. growth, anxiety about U.S.-China tensions and the partial U.S. government shutdown. In recent weeks, investors have piled into Treasuries, cash and other low-risk assets. Benchmark 10-year Treasury yields hit 2.720 percent, the lowest since April 2, earlier Wednesday. They were 2.808 percent, up 5.5 basis points from Monday which its biggest one-day increase since Nov. 2. The gap between two-year and 10-year yields grew to its widest in three weeks on bets the Fed might pause its 2019 rate-hike campaign earlier than previously thought in response to economic growth and recent stock market losses. "We think the Fed is done. We are not expecting any rate hikes in 2019," Bishop said. The two-year yield touched 2.540 percent earlier Wednesday, the lowest since July 6, before rising to 2.621 percent, up 3 basis points from late Monday. The gap between two-year and 10-year yields expanded to 19.2 basis points, the widest in three weeks. Trading volume was light with many European markets remaining closed after Christmas. U.S. financial markets reopened after being shut for the holiday. The sharp decline in U.S. yields since November has reduced the appeal of Treasuries among investors, who expected yields to rise, stemming from the growing federal deficit after the massive tax cut a year ago. The Treasury Department sold $41 billion of five-year debt to tepid demand with the weakest bid-to-cover ratio, a gauge of overall auction hunger, in about 9-1/2 years.

The Treasury's $40 billion two-year note auction was also met with soft demand. The government will sell $32 billion of seven-year securities at 1 p.m. EST (1800 GMT) on Thursday. December 26 Wednesday 4:47PM New York / 2147 GMT Price

US T BONDS MAR9 144-17/32 -29/3210YR TNotes MAR9 120-244/256 -15/32Price Current NetYield % Change

(bps)

Three-month bills 2.3825 2.4302 -0.016Six-month bills 2.47 2.536 -0.003Two-year note 99-196/256 2.6211 0.033Three-year note 100-12/256 2.6083 0.038Five-year note 101-8/256 2.65 0.066Seven-year note 100-224/256 2.7353 0.06510-year note 102-180/256 2.8097 0.05730-year bond 106-8/256 3.0653 0.062YIELD CURVE Last (bps) Net

Change (bps)

10-year vs 2-year yield 18.50 0.7030-year vs 5-year yield 41.40 0.05

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 13.75 -1.25

spread

U.S. 3-year dollar swap 9.25 -1.00

spread

U.S. 5-year dollar swap 6.00 -1.75

spread

U.S. 10-year dollar swap 1.25 -0.75

spread

U.S. 30-year dollar swap -16.00 -1.50

spread

(Reporting by Richard Leong Editing by Jeffrey Benkoe and Richard Chang)