TREASURIES-Yields edge up as $38 bln 2-yr auction looms

Mon, Dec 22 2008, 11:47 GMT
http://www.afxnews.com

* U.S. Treasury cash yields slightly higher in Europe most

of the way out the curve, recovering from historic lows struck

last week as dealers take profit and adjust positions ahead of

the large supply of T-notes up for auction this week.

* Treasury to sell $38 billion of two-year notes later on

Monday and $28 billion of five-year paper on Tuesday, the only

two full days of trading this week owing to the Christmas

holidays.

* Weight of supply buoys yields, which bond bulls might have

expected to be lower given the fall in European shares, soft

U.S. stock futures, and the impact of the U.S. government's

$17.4 billion bailout for the auto industry starting to fade.

* "Yields are so unattractive for investors that they'll

have to buy credits and corporate (paper)," says Bettina

Mueller, fund manager at Deutsche Asset Management in Frankfurt,

adding that the rally in recent weeks has been purely a "safety

and liquidity" move.

* On this week's auctions, she adds: "It's a lot of issuance

just before Christmas. We might see a correction (lower)

beforehand, and then buying at the auction."

* But longer term Treasury futures are supported by the

prospect the Federal Reserve -- which slashed interest rates

last week to almost zero -- could buy long-dated bonds to help

keep term rates down and fight the year-long recession.

* At 1115 GMT, benchmark 10-year notes yielded

2.14 percent, up a basis point on the day, while the two-year

paper yielded 0.76 percent, also up a basis point.

* March 10-year Treasury futures gain 17/64 in price

to 127-08/32.

* The 2-10 year yield curve was little changed at around 138

basis points, having undergone a bull flattening as the long-end

outperformed shorter-dated paper, pushing the gap to its

narrowest in more than three months.

Reuters Terminal users can see related statistics, contributions and news by clicking on: CBOT T-bond futures CME Eurodollar futures 30 year long bond Simex Eurodlr futures Major yield spreads US bond overview NEWS 3000 CLIENTS CAN RETRIEVE ALL ISSUES BY RIGHT CLICKING ON AND SELECTING BOND ANALYSIS Tokyo Treasury report New York Treasury report All US news US government debt All debt news World Bonds report Debt auctions Dollar Eurobond issues SPEED GUIDES Keywords: MARKETS TREASURIES

(Reporting by Jamie McGeever; editing by Andy Bruce; Reuters Messaging: jamie.mcgeever.reuters.com@reuters.net; +44 207 542 8510)

The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.

The copying, republication or redistribution of AFX News Content, including by framing or similar means, is expressly prohibited without the prior written consent of AFX News AFX News and AFX Financial News Logo are registered trademarks of AFX News Limited For more information and to contact AFX: www.afxnews.com and www.afxpress.com