TREASURIES-Yields fall as buyers step in, tepid demand for 20-year auction

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 (Recasts with yield fall, adds auction results, adds quote,
updates prices)
    By Karen Brettell
    NEW YORK, Nov 17 (Businesshala) - U.S. Treasuries rallied on
Wednesday as the recent backup in yields reached levels that
drew buyers back to the securities, and after the Treasury sold
20-year bonds to tepid but not terrible demand.
    Benchmark 10-year yields reached 1.65%, the
highest since Oct. 26, before reversing and falling back to
1.61%. They have increased from a low of 1.42% last week, before
data showed that U.S. consumer prices posted their biggest gain
in 31 years in October.
    “After the backup we’ve seen over the past few days an
argument could be made that some technical factors are probably
bringing some buying interest in,” said Ben Jeffery, an interest
rate strategist at BMO Capital Markets in New York. “That 20
basis point selloff is a compelling dip to buy for people
looking to add a little bit of duration before the end of the
year.”
    Yields briefly spiked after the Treasury sold $23 billion in
20-year bonds at a high yield of 2.065%, more than one basis
point above where they had traded before the auction.

    The 20-year bonds have suffered from relatively less demand
than other maturities since they were reintroduced in May 2020.
Twenty-year bond yields remained above those offered on 30-year
bonds, where they have traded since Oct. 28. The
20-year bond yields were last at 2.05% while 30-year
yields were at 2.00%.
    Inflation expectations also tumbled on Wednesday, with
breakeven rates on five-year Treasury Inflation-Protected
Securities (TIPS) falling to 3.16%, after reaching
3.24% on Tuesday.  
    Investors are trying to gauge whether rising price pressures
are becoming more entrenched, which could lead the Federal
Reserve to hike rates faster than previously expected.
    The wait to see whether U.S. President Joe Biden will keep
Jerome Powell as head of the U.S. central bank for a second
term, or elevate Fed Governor Lael Brainard to the post, is
adding additional uncertainty to the outlook.
    Brainard is seen as being more dovish than Powell, and could
be more likely to let inflation run hotter for longer before
tightening policy. Biden will likely decide on who he will
nominate before Thanksgiving, a White House spokesperson said on
Wednesday.
    Data on Wednesday showed that U.S. single-family
homebuilding tumbled in October while the number of houses
authorized for construction but not yet started jumped to a
15-year high, underscoring the disruption to the housing market
from an ongoing shortage of materials and labor.
    
    November 17 Wednesday 3:01PM New York / 2001 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.0525       0.0532    0.007
 Six-month bills               0.065        0.0659    0.000
 Two-year note                 99-191/256   0.506     -0.014
 Three-year note               99-176/256   0.856     -0.018
 Five-year note                99-114/256   1.2408    -0.026
 Seven-year note               99-60/256    1.4913    -0.029
 10-year note                  97-224/256   1.606     -0.028
 20-year bond                  95-56/256    2.0455    -0.013
 30-year bond                  97-60/256    1.998     -0.020
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        24.50        -0.25    
 spread                                               
 U.S. 3-year dollar swap        19.50        -0.50    
 spread                                               
 U.S. 5-year dollar swap        10.25         0.00    
 spread                                               
 U.S. 10-year dollar swap        4.75         0.00    
 spread                                               
 U.S. 30-year dollar swap      -20.25        -0.50    
 spread (Editing by Kirsten Donovan and Chizu Nomiyama)
  
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