* 10-year yields hit a 10-month month high
* BOJ trims bond buying, sparking sell-off
* US Treasury to sell $24 bln in 3-year notes at 1 pm EST
By Kate Duguid
NEW YORK, Jan 9 - Yields on the benchmark U.S. government bond hit a 10-month high on Tuesday after the Bank of Japan said it will trim its purchases of Japanese government bonds.
The announcement raised speculation the Japanese central bank may wind down its monetary stimulus this year. Although the move was in line with the BOJ's slow reduction in bond buying, it highlights the sensitivity of markets to global monetary policy.
"We don't necessarily see this as a signal of impending policy change, but investors are very sensitive to the overall monetary policy backdrop, especially out of the major central banks", said John Briggs, head of Americas strategy at NatWest Markets in Stamford, Connecticut. "Any worries about changes to Bank of Japan policies will have spillover into other markets."
The move in longer-dated bonds steepened the yield curve amid an overall flattening trend coming into the new year. The spread between two-year and 10-year yields rose to 56 basis points, 4 basis points above yesterday's close.
The spread between five-year and 30-year yields rose to a high of 56 basis points, 4 basis points higher than its last close.
About the short end of the curve, Briggs said: "I think this is more of a curve movement. (Short-dated bonds) are essentially unchanged."
The U.S. Treasury Department will kick off its 2018 coupon auctions with a sale of $24 billion of three-year notes at 1 p.m. EST (1800 GMT). The agency is selling $56 billion in new supply this week, with 10-year notes on Wednesday and 30-year bonds on Thursday. The U.S. 10-year note yielded 2.515 percent at 9:36 a.m. EST (1436 GMT), the highest since March 17. The benchmark government bond last closed at 2.482 percent.
The two-year note, which is sensitive to traders' views on Fed policy, yielded 1.956 percent at 9:31 a.m. EST (1431GMT), near nine-year highs. The three-year note yield , was 2.063 percent at 9:31 a.m. ET (1431 GMT), near the decade high of 2.07 percent reached on Monday.
January 9 Tuesday 9:36 AM EST New York / 1436 GMT
PriceUS T BONDS MAR8 150-27/32-0-28/3210YR TNotes MAR8 123-64/256 -0-60/25
6
PriceCurrent Net
Yield % Change
(bps)Three-month bills 1.42 1.445 0.031Six-month bills 1.5651.5994-0.008Two-year note 99-216/256 1.956 -0.004Three-year note 99-120/256 2.06260.003Five-year note 99-40/2562.30550.019Seven-year note 98-208/256 2.43620.02910-year note 97-176/256 2.51650.03430-year bond 97-216/256 2.85780.043
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps) U.S. 2-year dollar swap19.50 1.00spread U.S. 3-year dollar swap18.25 0.50spread U.S. 5-year dollar swap 3.75 0.00spread U.S. 10-year dollar swap -1.75-0.25spread U.S. 30-year dollar swap-21.00-0.50spread
(Reporting by Kate Duguid; Editing by Jeffrey Benkoe)
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