US yields scale three-month peaks on poor auctions ahead of election
US two-year, five-year note auctions show lackluster results
US Q4 financing estimates lower than July forecast
Investors look ahead to Treasury refunding, US payrolls
Adds new comments, byline, bullets, graphic, Treasury note auctions, updates prices
By Gertrude Chavez-Dreyfuss and Karen Brettell
NEW YORK, Oct 28 (Reuters) -U.S. Treasury yields hit three-month highs on Monday, lifted by improved risk sentiment as Wall Street stocks rose ahead of key tech earnings reports this week, while weak government auctions highlighted soft demand beforenext week'sU.S. presidential election.
Yields on U.S. two-year notes to 30-year bonds climbed to roughly three-month peaks.
Investors are also looking to Friday's U.S. nonfarm payrolls data, a key economic report ahead of the Federal Reserve's two-day policy meeting starting on Nov. 6.
"The bond vigilantes have risen again like they did in October of 2023," said Greg Faranello, head of U.S. rates strategy at AmeriVet Securities in New York, referring to investors selling bonds to protest massive fiscal spending, pushing yields higher.
"And they have a window here and (are) leaning on it. Risk is holding in. Some years later this is not the same bond market."
Weak demand at Monday's U.S. two-year and five-year note auctions made sense given a slew of events this week and next, analysts said. More Treasury supply is coming with Tuesday's sale of U.S. seven-year notes, along with a refunding announcement on Wednesday.
In afternoon trading, benchmark U.S. 10-year yields jumped to their highest since July 11, at 4.3% US10YT=RR. It was last up 4.4 basis points at 4.274%.
The U.S. 30-year yield touched its highest since early July, of 4.555% US30YT=RR. It last changed hands at 4.524%, up 2.4 bps.
The U.S. five-year yield also rose to a three-month high, last trading up 5.3 bps at 4.105% US5YT=RR.
The five-year note auction priced with a high yield of 4.138% , above the expected rate at the bid deadline, suggesting investors demanded a premium to buy the note.
The two-year note auction was similarly soft, with a high yield of 4.13% , higher than the expected rate.
U.S. two-year yields, which reflect interest rate moves by the Fed, stormed to their highest since early August. It last traded up 3.5 bps at 4.133% US2YT=RR.
Treasury yieldshave jumped this month as traders priced in a stronger U.S. economy, and less dovish Fed. Rising speculation that Republican former President Donald Trump will win the Nov. 5 presidential election has added to the move.
U.S. yields showed little reaction to Monday's release of U.S. financing estimates for the fourth quarter.
The U.S. Treasury Department said it plans to borrow $546 billion in the fourth quarter, $19 billion less than the July estimate. It will announce refunding plans including auction sizes for the November-to-January period on Wednesday.
"The borrowing projections for both Q4 and Q1 are close to expectations overall, so we have no reason to deviate from our expectations for unchanged coupon auctions," wrote Tom Simons, U.S. economist, at Jefferies in a research note.
"The primary intrigue will lie within the guidance about future quarters, as Treasury indicated an expectation of steady coupon auction sizes 'for the next several quarters' in May and August.
For jobs data due on Friday,recent hurricanes affecting areas including North Carolina could impact the numbers. "Givenall the volatility around hurricanes, I think it's going to be very interesting to see what the market reaction is going to be to the data," said Subadra Rajappa, head of U.S. rates strategy at Societe Generale in New York.
Employers are expected to have added 123,000 jobs inOctober, while the unemployment rate is likely to stay steady at 4.1%, economists polled by Reuters said. USNFAR=ECI, USUNR=ECI
Traders priced out the likelihood of additional 50 basis point rate cuts after a much stronger-than-expected jobs report for September. The market now sees 95% odds of a 25-bp cut next week and a 5% chance of a pause, according to LSEG calculations.
Rate futures have also priced in 43 bps in rate reductions for 2024, a scenario that indicates the Fed may pause in December.
US 10-year Treasury yield https://reut.rs/3Yr3VJx
Reporting by Karen Brettell and Gertrude Chavez-Dreyfuss; Editing by Kirsten Donovan and Richard Chang
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