TREASURIES-U.S. yields mixed as caution on stimulus package persists

    * U.S. yield curve steepens modestly
    * Near term, 10-year yield likely between 1.75%-2%-BofA
    * U.S. 5-year note auction shows mixed results

 (Adds new comment, auction results, updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Jan 26 (Reuters) - U.S. Treasury yields were
narrowly mixed in choppy trading on Tuesday, after hitting
three-week lows on the long end of the curve, as investors
remained cautious about the size of a proposed U.S. stimulus
package and the slow global roll-out of coronavirus vaccines.
    The U.S yield curve steepened modestly after flattening on
Monday. The spread between U.S. two-year and 10-year yields
widened slightly to 91.30 basis points.
    U.S. Senate Majority Leader Chuck Schumer said late Monday
he and his fellow Democrats may try to pass much of President
Joe Biden's $1.9 trillion coronavirus relief bill using a
process that would bypass a Republican filibuster and could
allow it to pass with a majority vote.
    Mike Chang, interest rates strategist at Citi in New York,
said his firm believes the stimulus package would be much
smaller, around $600 billion to $1 trillion. 
    "Timing is another issue, not just the size - how long it
will take to get the whole thing through," he added.
    In addition, there have been coronavirus vaccine delivery
problems globally, especially in Europe. For instance,
AstraZeneca, which developed its vaccine with Oxford
University, told the European Union that it could not meet
agreed supply targets by the end of March.
    In early afternoon trading, the benchmark 10-year yield
 slipped to 1.036%, from 1.04% late on Monday. It
earlier slid to 1.026%, its lowest since Jan. 6.
    "We are clearly in the early expansion phase of the cycle,"
said BoFA Securities in a note on Tuesday. "With the (Federal
Reserve) squarely on hold, the expectation is for a
bear-steepening dynamic for the curve. The bearish momentum at
the back-end of the curve is supported by improved fundamentals,
while the front-end continues to be anchored by the Fed."
    In the early stage of the cycle, the bank said the 10-year
yield is likely to trade in a range of 1.75-2%, while the
two-year/10-year yield curve could widen to 150 basis points.
    U.S. 30-year yields were up at 1.801% from
Monday's 1.799%, after earlier dropping to a three-week low of
    On the front end of the curve, U.S. two-year yields slipped
to 0.123% from 0.127% on Monday.
    Also on Tuesday, the Treasury auctioned a record $61 billion
in 5-year notes, with mixed results.
    A high yield of 0.424% - slightly lower than the
"when-issued" or consensus forecast of 0.427% - suggested that
investors were willing to buy the paper even at a lower yield
than the consensus estimate.
    But the bid-to-cover ratio was 2.34, below last month's 2.39
and the 2.47 average, and the weakest since July largely due to
the increased issue volume, Action Economics said in its blog
after the auction.
    Post-auction, U.S. five-year note yields were slightly down
at 0.408%.
    The Federal Reserve began its two-day policy gathering on
Tuesday and will announce the results of its meeting on
Wednesday. Analysts expect the Fed to stick to its dovish tone
amid a persistent surge in virus cases.
      January 26 Tuesday 2:03PM New York / 1903 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.0775       0.0786    -0.002
 Six-month bills               0.0825       0.0837    -0.005
 Two-year note                 100-1/256    0.123     -0.004
 Three-year note               99-214/256   0.1805    0.000
 Five-year note                99-212/256   0.4103    0.000
 Seven-year note               99-84/256    0.7246    0.000
 10-year note                  98-124/256   1.0381    -0.002
 20-year bond                  96-16/256    1.608     0.004
 30-year bond                  95-232/256   1.8031    0.004
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap         7.50        -0.25    
 U.S. 3-year dollar swap         8.00         0.00    
 U.S. 5-year dollar swap         9.75         0.25    
 U.S. 10-year dollar swap        3.00         0.00    
 U.S. 30-year dollar swap      -24.75        -0.75    
 spread (Reporting by Gertrude Chavez-Dreyfuss; Editing by Paul Simao
and Sonya Hepinstall)