Short-Term U.S. Government Debt Weakens Amid Supply

By Daniel Kruger Features Dow Jones Newswires

Shorter-term U.S. government bonds weakened in thin holiday trading ahead of a planned sale of $26 billion of two-year notes.

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The yield on the two-year U.S. Treasury note rose to 1.903%, according to Tradeweb, from 1.894% Friday, while the benchmark 10-year Treasury yield fell to 2.463% from 2.486%. Bond yields fall as prices rise.

This week the Treasury is also selling floating-rate debt along with five- and seven-year notes, as well as $134 billion of bills maturing in six months or less. Traders described activity in the market as quiet, with many people out in the wake of the holidays, and the two-year note sale tends to be "the most routine affair" among the offerings, said Thomas Simons, a money market economist at Jefferies LLC.

The 10-year note yield last week posted its biggest weekly increase since the week of Sept. 15 in what investors described as light preholiday trading, climbing above the 2.446% level where it ended 2016. That compared with smaller rise in the two-year yield, leading to a wider gap between yields on longer- and short-term bonds.

The yield curve, as the difference is known, is typically seen as a barometer of sentiment about the economy, with a widening curves suggesting prospects for continued gains in output. The gap ended 2016 at 1.25 percentage points and has steadily narrowed to below 0.6 percentage point.

Write to Daniel Kruger at daniel.kruger@wsj.com

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Shorter-term U.S. government bonds weakened Tuesday in thin holiday trading as the Treasury sold $26 billion of two-year notes.

The yield on the two-year U.S. Treasury note rose for a fifth consecutive day to 1.903% from 1.894% Friday. The yield on the benchmark 10-year Treasury note fell for a third consecutive session to 2.467% from 2.486%. Bond yields fall as prices rise.

Along with the two-year notes, the Treasury also sold $134 billion of bills maturing in six months or less. Traders described activity in the market as quiet, with many people out for the holidays, and the two-year note sale tends to be "the most routine affair" among the offerings, said Thomas Simons, a money market economist at Jefferies LLC. Later this week, the Treasury is also selling floating-rate debt along with five- and seven-year notes.

The 10-year yield last week posted its biggest weekly increase since the week of Sept. 15, in what investors described as light preholiday trading, climbing above the 2.446% level where it ended 2016. A smaller increase in the two-year yield led to a wider gap between yields on longer- and shorter-term bonds.

The yield curve, as the difference is known, is typically seen as a barometer of sentiment about the economy, with a steepening curve suggesting prospects for continued growth. The gap ended 2016 at 1.25 percentage points and has steadily narrowed to below 0.6 percentage point.

The yield on the two-year note, which is typically more sensitive to expectations for central bank policy, has risen as the Federal Reserve followed through on its forecast to raise rates three times this year. Fed officials are projecting three more increases in 2018 and two in 2019. The 10-year yield is usually more sensitive to expectations for growth and inflation.

(END) Dow Jones Newswires

December 26, 2017 16:08 ET (21:08 GMT)