NEW YORK: Prices on US Treasuries were mostly flat on Monday during light trading, with the yield on two-year notes edging up to a more than five-and-a-half year high as traders balanced positions ahead of a $26 billion dollar auction of two year notes by the Treasury Department.
The yield on two-year notes reached 1.04 percent overnight, marking their highest level since May 2010. Traders attributed the move to end-of-year light trading volumes and market choppiness.
Traders expect the two-year auction to be well-received given the strong demand for the note in December 2013 and December 2014. The Treasury Department sell $90 billion of debt this week.
"Five and seven year notes don't tend to do well in December and uncertainty about the post-liftoff path of rate hikes could keep people away this week," said Gennadiy Goldberg, interest rates strategist at TD Securities in New York.
The Treasury will sell $35 billion of five-year notes on Tuesday, $29 billion of seven-year notes on Wednesday to raise $21.2 billion in new cash.
Traders were cautious about putting additional selling pressure on 30-year bonds and 10-year notes as they lightened up positions in thin and potentially illiquid trading conditions.
"This week, there'll be a cross current between higher yields enticing buyers versus year-end illiquidity and uncertainty about future rate hikes keeping people away," said Goldberg.
Traders expect to see low trading volumes this week as investors typically shy away from making big trades at the end of the year.
U.S. two-year notes were last down 1/32 in price to yield 1.023 percent, up from 1.002 percent on Thursday.
While prices on most Treasuries were flat, the 30-year bond was up during morning trading. It was last up 11/32 in price to yield 2.945 percent, down from 2.963 percent on Thursday.
Benchmark 10-year U.S. Treasury notes were last at 0/32 in price to yield 2.242 percent, slightly down from 2.243 percent on Thursday.
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