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TREASURIES-Yields dip as virus concerns offset U.S. stimulus boost

 (Adds TIPS auction results, U.S. data, updates prices)
    By Karen Brettell
    NEW YORK, Dec 22 (Reuters) - U.S. Treasury yields fell on
Tuesday as investors weighed the likelihood of new lockdowns
stemming from a more infectious variant of the coronavirus in
the United Kingdom against the impact of U.S. fiscal stimulus.
    Benchmark 10-year yields fell to 1-1/2 week lows early on
Monday as countries shut off travel ties with the UK. The yields
have since fluctuated as investors focus on whether the new
variant will be resistant to vaccines.
    BioNTech is testing the effectiveness of the COVID-19
vaccine it developed with Pfizer Inc against the
mutation as it prepares to send 12.5 million doses to European
Union countries by the end of year.
    "The markets will continue to assess the threat from the new
strain of virus and the more stringent lockdowns," analysts at
Action Economics said in a report on Tuesday. At the same time,
the stimulus is "helping revive investor sentiment," they added.
    The U.S. Congress on Monday approved an $892 billion
coronavirus aid package after months of inaction.
    Data on Tuesday showed that U.S. consumer confidence dropped
for a second straight month in December as a deterioration in
the labor market amid renewed business restrictions to slow the
pandemic offset the rolling out of a vaccine for COVID-19.

    U.S. 10-year yields fell two basis points on the
day to 0.918% after falling as low as 0.882% on Monday.
    The yield curve between two-year and 10-year notes
 flattened one basis point to 80 basis points,
holding just below an almost three-year high of 83 basis points
reached on Friday.
    Longer-dated Treasury yields have risen and the yield curve
has steepened on expectations that more fiscal spending and
ultra loose Federal Reserve policy will spur higher inflation.
    Demand was solid for the Treasury Department's $15 billion
auction of five-year Treasury-Inflation-Protected-Securities
(TIPS) on Tuesday.
    The notes sold at a high yield of minus 1.575% and had a
bid-to-cover ratio of 2.86 times.
    Breakeven rates on the five-year TIPS, which
measure expected annual inflation, rose to 1.91% on Tuesday,
from a low of 1.88% on Monday.
    Market liquidity is low and expected to decline further with
many traders out before Friday's Christmas holiday. The bond
market will close early at 2 p.m. EST on Thursday and be closed
on Friday for the Christmas Day.
    
    December 22 Tuesday 3:03PM New York / 2003 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.0875       0.0887    -0.002
 Six-month bills               0.09         0.0913    -0.008
 Two-year note                 100-3/256    0.1189    -0.004
 Three-year note               99-222/256   0.1697    -0.010
 Five-year note                100-14/256   0.3638    -0.017
 Seven-year note               99-236/256   0.6365    -0.025
 10-year note                  99-152/256   0.918     -0.023
 20-year bond                  98-188/256   1.4484    -0.032
 30-year bond                  99-84/256    1.6536    -0.030
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         8.25         0.00    
 spread                                               
 U.S. 3-year dollar swap         7.50         0.50    
 spread                                               
 U.S. 5-year dollar swap         7.00         0.50    
 spread                                               
 U.S. 10-year dollar swap        0.25         0.25    
 spread                                               
 U.S. 30-year dollar swap      -26.50         0.75    
 spread (Reporting by Karen Brettell; Editing by Kirsten Donovan and
Richard Chang)
  
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