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TREASURIES-U.S. Treasury yields rebound after weak 20-year bond auction

 (Updates with market activity, details from Congressional
Budget Office report)
    By Herbert Lash
    NEW YORK, July 21 (Reuters) - Yields on U.S. Treasuries
rebounded for a second day on Wednesday, with a sale of 20-year
government debt on the weak side, as fears of new COVID-19
lockdowns eased and a rally in equity markets suggested renewed
optimism about a robust economic recovery.
    The Treasury sold $24 billion of 20-year bonds to yield
1.890%, which was more than one full basis point higher than the
yield at the bidding deadline and a bit weak, said Lou Brien,
market strategist at DRW Trading.
    The bid cover at 2.33 to 1 was slightly less than average,
he said. 
    The yield on 10-year Treasury notes was up 8.8
basis points to 1.297%, after briefly crossing above 1.3%
earlier in trading. 
    The yield on the 30-year Treasury bond was up
7.4 basis points to 1.943%. 
    Investors are grappling with when the Federal Reserve will
begin to remove, or "taper," its support for the U.S. economy
and whether a recent hike in inflation is transitory, as the Fed
projects, or will be persistent as many in the market believe.
    Yields on the benchmark 10-year Treasury plunged almost 30
basis points from July 13, when data showed the biggest jump of
U.S. consumer prices in 13 years in June, to a low of 1.128%
early on Tuesday. Yields have rebounded almost 17 basis points
since then.
    The U.S. Treasury Department is likely to be unable to pay
its bills and provide funding for certain benefit programs
sometime in October or November unless Congress approves
legislation extending the agency's statutory borrowing
authority, the non-partisan Congressional Budget Office forecast
on Wednesday.
    The federal government has shut down three times in the past
decade over debt limit haggling in Congress.
    A closely watched part of the U.S. Treasury yield curve
measuring the gap between yields on two- and 10-year Treasury
notes, seen as an indicator of economic
expectations, was at 108.5 basis points. 
    The two-year U.S. Treasury yield, which typically
moves in step with interest rate expectations, was up 1.6 basis
points at 0.210%. 
    The breakeven rate on five-year U.S. Treasury
Inflation-Protected Securities (TIPS) was last at
2.482%.
    The 10-year TIPS breakeven rate was last at
2.298%, indicating the market sees inflation averaging about
2.3% a year for the next decade.
    
      July 21 Wednesday 3:57PM New York / 1957 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.05         0.0507    0.000
 Six-month bills               0.05         0.0507    0.000
 Two-year note                 99-214/256   0.2098    0.016
 Three-year note               99-246/256   0.3882    0.031
 Five-year note                100-170/256  0.7378    0.064
 Seven-year note               101-92/256   1.0464    0.078
 10-year note                  103-8/256    1.2951    0.086
 20-year bond                  106-100/256  1.8628    0.080
 30-year bond                  109-196/256  1.9419    0.073
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         8.25         0.25    
 spread                                               
 U.S. 3-year dollar swap        10.25         0.75    
 spread                                               
 U.S. 5-year dollar swap         8.00         1.00    
 spread                                               
 U.S. 10-year dollar swap        0.00         1.75    
 spread                                               
 U.S. 30-year dollar swap      -28.50         2.25    
 spread (Reporting by Sujata Rao, Herbert Lash and Ross Kerber; Editing
by Marguerita Choy, Mark Heinrich and Sonya Hepinstall)
  
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