TREASURIES-U.S. plan to issue more long-dated debt steepens yield curve

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By Kate Duguid

NEW YORK, Aug 5 (Reuters) – The U.S. government bond yield curve steepened on Wednesday as prices fell on the prospect of increased supply in longer-dated debt after the Treasury Department said it would borrow more in the third quarter than previously anticipated.

Treasury auctions will continue shifting toward longer-term notes and bonds in coming quarters to fund measures to offset the impact of the COVID-19 pandemic, the department said on Wednesday. Its borrowing needs are expected to moderate but remain elevated, partly subject to additional legislation, said Brian Smith, deputy assistant secretary for federal finance.

“The U.S. Treasury was aggressive yet again in growing coupon issuance, pushing multiple tenors further into record territory as it terms out financing the deficit and COVID-related stimulus,” said Jon Hill, head of U.S. rates strategy at BMO Capital Markets, noting that the increases in 10-year and 30-year bonds exceeded expectations.

“The market incrementally repriced on the announcement, with the curve steepening.”

The benchmark 10-year yield was last up 3.3 basis points at 0.546% and the 30-year yield was up 3.5 basis points at 1.226%. The short end of the curve was roughly flat, with the two-year yield 0.8 basis point higher at 0.119%.

The spread between the two- and 10-year yields , the most common measure of the yield curve, rose 2.7 basis points to 42.5 basis points.

The Treasury said on Monday it planned to borrow $947 billion in the third quarter, about $270 billion more than its previous estimate.

On Tuesday, the five-year yield hit an all-time low and the 10-year yield touched its second-lowest level as investors sought safe-haven assets on worries about the stability of the U.S. economic recovery and skepticism that the ongoing negotiations in Congress would yield further coronavirus relief.

One of the White House’s lead negotiators in talks with congressional Democrats on a new stimulus bill and some Senate Republicans said they viewed Friday as the deadline to reach a deal or drop talks.

A Wednesday morning report showed U.S. private employers hired far fewer workers than expected in July as companies exhausted loans to help with wages and new COVID-19 infections flared up across the country. (Reporting by Kate Duguidd; editing by Jonathan Oatis)

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