UK Markets open in 19 mins

TREASURIES-Yields bounce from 3-month lows as risk appetite improves

By Karen Brettell

(New throughout, updates prices, market activity and comments) * Three-month, 10-year yield curve briefly inverts * Yields get technical support at bottom of recent range * Treasury sells $32 bln in seven-year notes By Karen Brettell NEW YORK, Jan 28 (Reuters) - Benchmark 10-year Treasury yields bounced off three-month lows on Tuesday, after a key part of the yield curve briefly inverted for the first time since October, as risk appetite improved even while investors kept assessing the economic impact from a virus outbreak in China. The death toll from the virus topped 100 overnight and a number of governments and multinational companies are restricting travel to China. But stocks rose over 1% as a surge in Apple and other technology stocks reflected improving risk appetite. Benchmark 10-year note yields fell as low as 1.57% overnight, the lowest since Oct. 10, before jumping back to 1.65%. Yields likely bounced off lows as they hit technical support at the bottom of their recent range, said Subadra Rajappa, head of U.S. rates strategy at Societe Generale in New York. “I think this might just be us reaching some technical points where it’s really hard to break through the 1.60% level,” Rajappa said. The 10-year yields have dropped from a high of 1.76% on Friday as fears about the spreading virus hit risk assets and increased demand for safe-haven bonds. The yield curve between three-month notes and 10-year government bonds briefly inverted to -0.015 basis point ,, its lowest since October, before returning to 7 basis points. An inverted curve, when longer-dated yields fall below shorter-maturity ones, has been a fairly reliable signal that a U.S. recession will follow one to two years later. It inverted last March for the first time since the financial crisis. The moves in the yield curve this week, however, may be due to heavy supply of short- and intermediate-dated notes, said Gary Pollack, head of fixed-income trading at Deutsche Bank Private Wealth Management in New York. "I would rather give it a couple of days, let the auctions settle, and then reexamine the yield curve before I draw any conclusions over whether it's signaling anything," Pollack said. The Treasury Department saw slightly soft demand for a $32 billion sale of seven-year notes on Tuesday, following a $40 billion auction of two-year notes and $41 billion sale of five-year notes on Monday. Data on Tuesday showed new orders for key U.S.-made capital goods dropped in December by the most in eight months and shipments were weak. Other data showed consumer confidence surged to a five-month high in January amid optimism over the labor market. January 28 Tuesday 2:18PM New York / 1918 GMT Price Current Net Change Yield % (bps) Three-month bills 1.54 1.5719 0.005 Six-month bills 1.5375 1.5754 0.000 Two-year note 99-212/256 1.4625 0.028 Three-year note 100-38/256 1.4486 0.035 Five-year note 99-134/256 1.4742 0.037 Seven-year note 101-48/256 1.5682 0.042 10-year note 100-228/256 1.651 0.046 30-year bond 105-228/256 2.1077 0.053 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 5.75 1.25 spread U.S. 3-year dollar swap 2.00 0.00 spread U.S. 5-year dollar swap -0.50 0.25 spread U.S. 10-year dollar swap -5.50 0.50 spread U.S. 30-year dollar swap -32.00 0.50 spread (Reporting by Karen Brettell; editing by Jonathan Oatis and David Gregorio)