TREASURIES-Two-year yields rise to pandemic high, curve flattens on Powell nomination

BY Reuters | TREASURY | 11/22/21 04:48 PM EST
    (Adds 5-year Treasury yield)
    By David Randall
    NEW YORK, Nov 22 (Reuters) - U.S. Treasury yields rose on
Monday after President Joe Biden announced he would nominate Fed
Chairman Jerome Powell to a second term while elevating Fed
Governor Lael Brainard to vice chair.
    Powell, who was widely expected to be tapped for a second
term, will helm the U.S. central bank as it begins to pull back
its emergency-level support of the economy and tame inflation,
which recently hit its highest levels since 1990.
    The two-year U.S. Treasury yield, which typically
moves in step with interest rate expectations, was up 8.5 basis
points at 0.590%, its highest since early March 2020 - before
the COVID-19 pandemic was declared - following a weak auction of
$58 billion in notes, said Lou Brien, an analyst at DRW Trading.
    The Treasury also auctioned $59 billion in five-year notes
in a sale that Brien characterized as "less than good," with
primary dealers taking the largest percentage of the sale since
February. Five-year Treasury yields rose to 1.32%, their highest
level since February 2020.
    The rising of short-term yields suggests that the market is
anticipating a more aggressive tapering move by the Fed in 2022,
said Ian Lyngen, head of U.S. Rates Strategy at BMO Capital
    Powell's nomination "certainly puts an earlier lift-off on
the table," Lyngen added.
    Futures on the federal funds rate, which track
short-term interest rate expectations, on Monday priced in a
100% chance of a quarter-point tightening by the Federal Reserve
by June next year. The probability was at more than 90% before
Biden's announcement.
    Powell's nomination "provides a little bit more legitimacy
to market pricing in terms of Fed tightening next year," said
Mazen Issa, senior currency strategist at TD Securities.
    The yield on 10-year Treasury notes was up 8.9
basis points to 1.625%. The yield on the 30-year Treasury bond
 was up 6.6 basis points to 1.973%.
    The yield curve flattened, with spreads between 5- and
30-year Treasuries tightening to their lowest levels since March
2020, while the spread between 5- and 10-year Treasuries reached
to their lowest since July 2020.

      November 22 Monday 4:07PM New York / 2107 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             !Empty       !Empty    !Empty
                               value        value     value
 Six-month bills               0.07         0.071     0.008
 Two-year note                 99-150/256   0.5904    0.085
 Three-year note               99-112/256   0.942     0.096
 Five-year note                99-24/256    1.3152    0.112
 Seven-year note               98-216/256   1.5514    0.113
 10-year note                  97-180/256   1.6253    0.089
 20-year bond                  99-180/256   2.0181    0.078
 30-year bond                  97-200/256   1.9734    0.066

                               Last (bps)   Net
 U.S. 2-year dollar swap        26.75         0.75
 U.S. 3-year dollar swap        21.75         1.50
 U.S. 5-year dollar swap        11.00         0.50
 U.S. 10-year dollar swap        5.75         1.75
 U.S. 30-year dollar swap      -17.25         2.50

 (Reporting by David Randall; Editing by Will Dunham)

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