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TREASURIES-Ten-year yield soars, curve steepens on reflation trade

 (Recasts, updates yields, adds analyst comments)
    Feb 16 (Reuters) - The 10-year U.S. Treasury yield neared
1.3% on Tuesday and the yield curve steepened as expectations of
extended fiscal and monetary stimulus alongside hopes of an
economic upswing boosted the reflation trade. 
    The benchmark 10-year yield, which reached
1.292%, its highest level since February 2020, was last up 8.2
basis points at 1.282%. 
    The 30-year U.S. yield also rose, touching a
one-year high of 2.095%. It was last 7.7 basis points higher at
2.081%.
    Back from Monday's Presidents Day holiday, Treasuries were
catching up with a global bond sell-off. German 10-year yields
rose on Tuesday to their highest in eight months.

    Guy LeBas, chief fixed income strategist at Janney Capital
Management in Philadelphia, said Treasuries were also missing
Asian buyers.
    "What we've seen over the last several months has been
buying out of Asia and much of Asia markets are quiet right now
for the (lunar new year) holiday," he said.
    President Joe Biden has been drumming up support for a $1.9
trillion coronavirus relief package. Meanwhile, optimism about
vaccine rollouts has lifted stocks and commodity prices globally
at the expense of safe-haven assets like Treasuries.

    "The market has fully embraced the prospects of Biden's $1.9
trillion stimulus, and the accelerated vaccine rollout is
support of further bearish price action as well," Westpac
strategists told clients.
    A closely-watched part of the yield curve, which measures
the gap between yields on two- and 10-year Treasury notes
, widened to as much as 116.95 basis points, its
widest level since 2017. It was last up about 6.22 basis points
at 115.94 basis points. 
   The spread between five-year notes and 30-year bonds
, grew to as much as 155.35 basis points - the
widest since 2015. It was last at 153.23 basis points.
    While long-dated yields have soared, the two-year yield
 has been anchored by expectations the Federal Reserve
will keep policy rates near zero for years to come.
    Fed Chair Jerome Powell last week pledged "patiently
accommodative monetary policy" to get the United States back to
full employment. Investors will look to the release of the Fed's
January meeting minutes on Wednesday for confirmation of that
stance. 
    The view that the Fed may let the economy run hot has pushed
10-year inflation expectations to their highest since 2014, with
the breakeven inflation rate last at 2.246%.
    Official talks about tapering Fed bond buying, which could
begin in the second half of 2021, pose a potential downside risk
to breakeven rates, analysts at Cornerstone Macro said in a
research report on Tuesday. 
    "That could signal to investors, first that a large buyer in
the market is about to become smaller and eventually disappear,
and second that the Fed’s resolve to overshoot on inflation may
not be very strong, depending on what the outlook for inflation
will be at that time," the report said. 
    
February 16 Tuesday 12:25AM New York / 1825 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.04         0.0406    0.000
 Six-month bills               0.055        0.0558    0.000
 Two-year note                 100-2/256    0.121     0.010
 Three-year note               99-184/256   0.2193    0.026
 Five-year note                99-42/256    0.5463    0.061
 Seven-year note               98-224/256   0.9174    0.077
 10-year note                  98-136/256   1.282     0.082
 20-year bond                  91-68/256    1.908     0.085
 30-year bond                  95-108/256   2.081     0.077
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         9.25         0.00    
 spread                                               
 U.S. 3-year dollar swap         9.75        -0.25    
 spread                                               
 U.S. 5-year dollar swap        12.50         0.25    
 spread                                               
 U.S. 10-year dollar swap        9.00         1.75    
 spread                                               
 U.S. 30-year dollar swap      -19.00         1.50    
 spread (Reporting by Karen Pierog in Chicago, additional reporting by
Sujata Rao and Abhinav Ramnarayan in London and Kevin Buckland
in Tokyo; Editing by Chizu Nomiyama and Nick Zieminski)
  
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