TREASURIES-Long-end yields rise, yield curve steepest since 2018
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Karen Pierog
(Recasts, updates yields, adds analyst comments, yield curves, breakeven inflation rates, and Fed's Beige Book) By Karen Pierog CHICAGO, Dec 2 (Reuters) - U.S. Treasury yields on the long end of the curve rose on Wednesday, adding to Tuesday's big climb on a potential new coronavirus relief package, while the spread between 2- and 10-year notes reached its widest since February 2018. The benchmark 10-year yield was last up less than a basis point at 0.9393% and the yield curve steepened, with the most-watched yield spread widening to as much as 79.60 basis points. Justin Lederer, Treasury analyst and trader at Cantor Fitzgerald in New York, said hopes for a stimulus deal to aid the coronavirus-battered economy, as well as "the whole reflation trade" drove longer-end yields up. But he said the possibility the Federal Reserve could start purchasing more longer-term debt would keep rates from moving much higher. "There's no reason to believe rates will go significantly higher from here, not until the vaccines come and you really start to see improvement in the economy," Lederer said. Kim Rupert, managing director of global fixed income analysis at Action Economics in San Francisco, said if the 10-year yield, which hit an eight-month-high of 0.9750% on Nov. 9, breaks the 1% level, "the realization that the Fed is definitely in play will bring buyers." Republicans and Democrats in Congress remained at odds on Wednesday over a new round of economic aid. Democratic leaders called for negotiations over a $908 billion bipartisan proposal announced on Tuesday, while Republican Senate Majority Leader Mitch McConnell floated another plan. Still, renewed hopes that something will pass lifted inflation expectations with the 5-year, 10-year, and 30-year breakeven inflation rates,, all closed on Tuesday at their highest since May 2019 and moved higher in trading on Wednesday. With Fed policymakers meeting the week after next, Action Economics' Rupert said it was unclear whether the central bank will actually adopt a plan to buy more long-term Treasuries. "They don't want yields to rise and maybe crimp the recovery. So we could see some of the more dovish participants argue for duration extension in QE (quantitative easing)," she said. On the data front, the ADP National Employment Report showed U.S. private payrolls increased by a less-than-expected 307,000 in November. It comes ahead of Friday's release of the government's monthly employment report. Treasuries barely reacted to ADP, and the 10-year yield ticked a little higher after the release of the Fed's "Beige Book" report showing "little or no growth" in four of the Fed's 12 U.S. districts and only modest growth elsewhere in recent weeks. The 2-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was last down 1.2 basis points at 0.1623%. The spread between the 5-year note and 30-year bond reached its widest since Nov. 12 at 128.8 basis points. It was last up 2.3 basis points at 127.5 basis points. December 2 Wednesday 4:25PM New York / 2225 GMT Price Current Net Yield % Change (bps) Three-month bills 0.08 0.0811 -0.005 Six-month bills 0.0925 0.0938 -0.005 Two-year note 99-237/256 0.1623 -0.012 Three-year note 100-26/256 0.2154 -0.011 Five-year note 99-204/256 0.4162 -0.011 Seven-year note 99-144/256 0.6892 -0.005 10-year note 99-100/256 0.9393 0.005 20-year bond 98-24/256 1.4857 0.018 30-year bond 98-116/256 1.691 0.015 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 7.25 0.50 spread U.S. 3-year dollar swap 6.50 0.50 spread U.S. 5-year dollar swap 4.75 1.00 spread U.S. 10-year dollar swap -1.00 0.50 spread U.S. 30-year dollar swap -31.50 0.25 spread (By Karen Pierog, additional reporting by Kate Duguid in New York)