May 18, 2020 / 7:36 PM / 8 days ago

TREASURIES-U.S. yields surge on hopes about coronavirus vaccine

    * U.S. 30-year yields rise to 8-week high
    * U.S. 10-year yields climb to 2-week peak
    * U.S yield curve steepest in 2 months
    * Moderna vaccine news helps lift sentiment
    * Focus on U.S. 20-year bonds

 (Adds new comments, 20-year bond outlook, updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, May 18 (Reuters) - U.S. Treasury yields advanced
on Monday, as investors grew optimistic about a potential
vaccine that could help fight the coronavirus pandemic, boosting
overall risk appetite as stocks and oil gained as well.
    The upcoming supply of U.S. 20-year bonds also weighed on
long-dated Treasury prices.
    U.S. 30-year yields climbed to eight-week peaks, while those
on the 10-year rose to two-week highs, and the two-year advanced
to a one-week peak. The rise in long-dated yields steepened the
yield curve to its widest spread in two months.
    "Positive news like the vaccine (news) is really taking a
lot of the momentum out of the Treasury market," said Justin
Hoogendoorn, head of fixed income strategy for Piper Jaffray.
    Moderna Inc said on Monday its experimental
COVID-19 vaccine showed promise in a small early-stage trial,
with the vaccine producing virus-neutralizing antibodies similar
to those found in recovered patients.
    No approved treatment or vaccine is available for COVID-19,
the pulmonary disease caused by the novel coronavirus, and
experts predict a safe and effective vaccine could take 12-18
months to develop. 
    U.S. President Donald Trump on Friday expressed hope a
vaccine would be in place before the end of the year, and said
his administration would mobilize its forces to get a vaccine
distributed. [nL1N2CX1NF
    In afternoon trading, U.S. 10-year yields rose
to 0.735% from 0.64% late on Friday, after rising earlier to
0.744%, a two-week high.
    Yields on U.S. 30-year bonds were at 1.445%, up
from 1.32% on Friday. Earlier, 30-year yields rose to 1.46%, the
highest since late March.
    On the short end of the curve, U.S. two-year yields were
last at 0.181%, up from Friday's 0.149%, hitting a one-week high
earlier of 0.185%.
    The yield curve steepened for a second straight day on
Monday, with the spread between the 10-year and two-year
widening to as much as nearly 56 basis points,
the widest spread since March 20. On Friday, that gap was at
49.60 basis points on Friday.
    The curve has steepened since the beginning of the pandemic,
as investors have piled into short-term debt, having ruled out
rate hikes in the immediate future.
    Investors are also bracing for the $20 billion U.S. 20-year
bond auction on Wednesday. The last time a 20-year bond was sold
was more than three decades ago.
    "The Fed will be in, buying and taking out some of the
supply will be helpful for the 20 year auction," said Piper
Jaffray's Hoogendoorn. "It will naturally create more demand."
    The Federal Reserve has bought $1.5 trillion in Treasuries
since the middle of March, but has tapered its purchases this
week to an average of $6 billion per day, from $7 billion the
previous week.
    
      May 18 Monday 3:17 PM New York/1917 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.1175       0.1195    -0.005
 Six-month bills               0.15         0.1522    0.000
 Two-year note                 99-228/256   0.1813    0.032
 Three-year note               99-170/256   0.2378    0.050
 Five-year note                100          0.375     0.067
 Seven-year note               99-136/256   0.5689    0.083
 10-year note                  98-240/256   0.7355    0.095
 30-year bond                  95-68/256    1.4451    0.125
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         9.00        -0.75    
 spread                                               
 U.S. 3-year dollar swap         5.00        -1.25    
 spread                                               
 U.S. 5-year dollar swap         3.25        -0.50    
 spread                                               
 U.S. 10-year dollar swap       -2.25         0.00    
 spread                                               
 U.S. 30-year dollar swap      -47.75        -0.50    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by
Ross Kerber in Boston; Editing by Richard Chang and Nick
Zieminski)
  
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