Short-dated yields rise, soft demand for two-year auction

NEW YORK — Short-dated Treasury yields

edged higher on Monday in light trading conditions as the

Treasury sold new two-year notes to soft demand, the first

auction of $169 billion in short- and intermediate-dated notes

this week.

The notes sold at a high yield of 0.769%, around half a

basis point above where they had traded before the auction.

Demand for the debt was likely dented by illiquid conditions

with many traders and investors out between the Christmas and

New Year’s holidays.

The Treasury will sell $57 billion in five-year notes on

Tuesday and $56 billion in seven-year notes on Wednesday. It

will also sell $24 billion in two-year floating-rate notes on

Wednesday.

Two-year yields were last up 2 basis points at

0.711%. The yields had reached 0.731% on Dec. 10, which was the

highest since March 2020. The short-dated debt is highly

sensitive to interest rate expectations.

Five-year yields rose 1 basis point to 1.252%

while seven-year yields were little changed on the

day at 1.411%. Benchmark 10-year yields fell 1 basis

point to 1.481%.

Many analysts expect Treasury yields to rise in 2022, with

the Federal Reserve expected to begin increasing rates as the

economy rebounds from COVID-19-related business shutdowns. Fed

fund futures traders are fully pricing in a rate hike by May.

December 27 Monday 3:00PM New York / 2000 GMT

Price Current Net

Yield % Change

(bps)

Three-month bills 0.0575 0.0583 -0.013

Six-month bills 0.1825 0.1852 0.012

Two-year note 99-153/256 0.711 0.023

Three-year note 100-8/256 0.9892 0.018

Five-year note 99-254/256 1.2516 0.010

Seven-year note 100-150/256 1.4108 -0.003

10-year note 99-8/256 1.4807 -0.012

20-year bond 101-68/256 1.923 -0.009

30-year bond 99-192/256 1.8859 -0.021

DOLLAR SWAP SPREADS

Last (bps) Net

Change

(bps)

U.S. 2-year dollar swap 23.00 -0.75

spread

U.S. 3-year dollar swap 18.75 -0.50

spread

U.S. 5-year dollar swap 10.00 -0.75

spread

U.S. 10-year dollar swap 7.00 -0.25

spread

U.S. 30-year dollar swap -17.00 0.00

spread

(Reporting by Karen Brettell in New York

Editing by Alison Williams and Matthew Lewis)