Wires

TREASURIES-Yields fall in light post-holiday trading volume

Karen Brettell

NEW YORK, Jan 2 (Reuters) - U.S. Treasury yields fell on Thursday in light post-holiday trading, after longer-dated debt posted its highest yearly returns since 2014. There were no major market drivers, with benchmark 10-year note yields holding near the top end of their recent range. Trading volumes were light with many traders and investors away after Wednesday's New Year holiday. The yield curve between two-year and 10-year notes held just below 36 basis point level reached on Tuesday, which was the steepest since October 2018. Longer-dated debt gained last year on concerns about low inflation and weak growth as the Federal Reserve cut interest rates three times during the year. Demand for yield, with many bonds in Europe and Japan trading in negative territory, added to its outperformance. Thirty-year bonds returned 16.34% last year, according to Bank of America Merrill Lynch. Benchmark 10-year notes returned 8.91% for the year. Bonds gave up some of their gains in December, however, as risk appetite improved after the United States and China agreed to the first phase of a trade deal. The 10-year yields were last at 1.893%. They are holding below the three-month high of 1.973% reached on Nov. 7, but are up from 1.69% at the beginning of December and a three-year low of 1.43% reached on Sept. 3. Overnight funding markets were stable on Thursday after the Feds daily liquidity operations provided the market with adequate funding to get through the crucial year-end period, when there is often a funding squeeze.

January 2 Thursday 9:13AM New York / 1413 GMT

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(Editing by David Gregorio)