TREASURIES-U.S. yields little changed on caution about stimulus package

By Gertrude Chavez-Dreyfuss
NEW YORK, Jan 26 (Reuters) - U.S. Treasury yields were
little changed to slightly higher in choppy trading on Tuesday,
after hitting three-week lows on the long end of the curve, as
investors remained cautious in the near term about the size of a
proposed U.S. stimulus package as well as 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 modestly to 91.50 basis points.
U.S. Senate Majority Leader Chuck Schumer said late on
Monday that 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.
"We think ultimately it's going to be smaller than the $1.9
trillion," said Mike Chang, interest rates strategist at Citi in
New York. "We have penciled in around $600 billion-$1 trillion.
Timing is another issue, not just the size - how long it will
take to get the whole thing through."
In addition, there have been coronavirus vaccine delivery
problems globally, especially in Europe.
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. Pfizer Inc
said there would be a temporary impact on shipments of its
vaccine in late January to early February.
In mid-morning trading, the U.S. benchmark 10-year yield
fell to 1.33%, from 1.04% late on Monday. It earlier
fell to 1.026%, its lowest level since Jan. 6.
U.S. 30-year yields slid to 1.7955% from
Monday's 1.799%, after earlier dropping to a three-week low of
1.786%.
U.S. 20-year bond yields also weakened to a
three-week trough and were last down at 1.59%.
On the front end of the curve, U.S. two-year yields slipped
to 0.121% from 0.127% on Monday.
Also on Tuesday, the Treasury auctions a record $61 billion
in 5-year notes after a solid 2-year debt sale on Monday.
"We believe there will be demand as the Treasury market has
had a firm tone in recent sessions," Justin Lederer, rates
strategist at Cantor Fitzgerald, said in a research note.
"We, however, would not be surprised by a small back-up
leading into 1 pm (bid deadline) and/or small tail as market
participants are cautious at the current yield levels, as the
sector is trading at its richest levels since early January and
12 basis points lower than its high yield print a few weeks
ago," he added.
Ahead of the auction, U.S. five-year note yields were little
changed at 0.4119%.

January 26 Tuesday 10:28AM New York / 1528 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 0.08 0.0811 0.000
Six-month bills 0.085 0.0862 -0.003
Two-year note 100-1/256 0.123 -0.004
Three-year note 99-214/256 0.1805 0.000
Five-year note 99-210/256 0.4119 0.002
Seven-year note 99-80/256 0.727 0.002
10-year note 98-116/256 1.0414 0.001
20-year bond 96-12/256 1.6089 0.005
30-year bond 95-236/256 1.8024 0.003

DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 7.50 -0.25
spread
U.S. 3-year dollar swap 8.25 0.25
spread
U.S. 5-year dollar swap 10.00 0.50
spread
U.S. 10-year dollar swap 3.25 0.25
spread
U.S. 30-year dollar swap -24.00 0.00
spread


(Reporting by Gertrude Chavez-Dreyfuss
Editing by Paul Simao)