Treasury yields fall

US Treasury yields fell on Wednesday and the yield curve was its flattest since 2007 after the Treasury Department said it would keep auction sizes steady in the coming months, despite the Federal Reserve's plan to reduce its bond holdings. The government said it intended to announce changes in February, which would depend on its fiscal projections.
The Treasury Borrowing Advisory Committee (TBAC), which advises the government on funding strategy, also said that Treasury bills and two-year, three-year and five-year notes could be appropriate maturities for increased issuance. "There has been a fairly significant move in the curve, mainly because of the Treasury Borrowing Advisory Committee announcement that they felt that Treasury should do more financing in the front end," said Tom di Galoma, a managing director at Seaport Global Holdings in New York.
Some analysts had expected the Treasury to indicate it would increase issuance of longer-dated debt. Benchmark 10-year note yields fell to 2.37 percent, from 2.40 percent before the announcement. The yield curve between five-year notes and 30-year bonds flattened to as low as 82.7 basis points, a level last seen in late 2007.
The Treasury will need to increase auction sizes due to the Fed's declining participation in the market and the widening US deficit. But the suspension of the country's debt limit is due to expire on December 8, which is seen as complicating the government's ability to increase debt levels in the near-term. "There is so much uncertainty around December 8 and whether they will get a debt ceiling hike," said Aaron Kohli, an interest rate strategist at BMO Capital Markets in New York.
The Fed kept interest rates unchanged on Wednesday, as expected, and pointed to solid US economic growth and a strengthening labor market while playing down the impact of recent hurricanes. The ADP National Employment Report also showed that private employers hired 235,000 workers in October, the most in seven months. Investors shifted focus to the government's jobs report for October due on Friday.
Republicans in the US House of Representatives are due to release long-awaited tax legislation on Thursday, after delaying its introduction by one day. US President Donald Trump is also expected to announce his choice for new Fed chair on Thursday, with news reports indicating that Federal Reserve Governor Jerome Powell would likely to get the nomination.