CASH-Yield curve flattens after falling small business confidence

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 (Updates with market activity, analyst comment, auction
details)
    By Ross Kerber
    June 8 (Reuters) - Traders on Tuesday sent longer-term U.S.
Treasury yields to their lowest in more than a month after a
report showed small business owners less confident, and
narrowing the spread of a closely watched part of the yield
curve.
    The benchmark 10-year yield was down 3.9 basis
points at 1.5314% in afternoon trading. It reached as low as
1.513%, its lowest since May 7.
    Guy LeBas, chief fixed income analyst for Janney, said the
dip seemed driven by the release in the morning of a survey from
the National Federation of Independent Business showing small
business confidence declined in May for the first time in four
months.
    The theme was then reinforced by Labor Department data  
showing that U.S. job openings surged by nearly one million to a
new record high in April. The report strengthened the view that
a recent moderation in job growth was due to supply
constraints.
    Thin liquidity contributed to the volatility, LeBas said.
    A midday auction of $58 billion of 3-year notes
showed demand was "right on the market," according to an
investor note from DRW Trading market strategist Lou Brien, with
a high yield of 0.325%, little different than the note's level
at the bidding deadline.
    The morning's bond buying pushed down a closely watched part
of the U.S. Treasury yield curve measuring the gap between
yields on two- and 10-year Treasury notes, seen as
an indicator of economic expectations. It was at 138 basis
points, about three basis points lower than Monday's close, and
had reached its lowest since May 7.
    The amount of money flowing into the U.S. Federal Reserve's
reverse repurchase facility was $497.428 billion, the second day
in a row it hit a new all-time high and putting pressure on
short-term interest rates.    
    The 10-year TIPS yield was at -0.854% and the
breakeven inflation rate was at 2.377% after touching its lowest
since late April.
    The two-year U.S. Treasury yield, which typically
moves in step with interest rate expectations, was down less
than a basis point at 0.1527%.
    
      June 8 Tuesday 1:20PM New York / 1720 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.025        0.0253    -0.005
 Six-month bills               0.0375       0.038     -0.003
 Two-year note                 99-242/256   0.1527    -0.004
 Three-year note               99-216/256   0.3035    -0.009
 Five-year note                99-230/256   0.7708    -0.022
 Seven-year note               100-76/256   1.2055    -0.033
 10-year note                  100-220/256  1.5314    -0.039
 20-year bond                  101-216/256  2.1359    -0.034
 30-year bond                  103-136/256  2.213     -0.039
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         7.00         0.00    
 spread                                               
 U.S. 3-year dollar swap        10.75        -0.25    
 spread                                               
 U.S. 5-year dollar swap         7.00         0.00    
 spread                                               
 U.S. 10-year dollar swap       -3.25         0.00    
 spread                                               
 U.S. 30-year dollar swap      -29.00         0.25    
 spread (Reporting by Ross Kerber in Boston; Editing by Will Dunham and
Angus MacSwan)
  



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