* U.S. to sell record amounts of 3-month, 6-month bills
* U.S. to auction $55 bln 1-month bills, $28 bln 2-year notes
By Richard Leong
NEW YORK, Feb 20 (Reuters) - U.S. Treasury yields rose on Tuesday with the benchmark 10-year yield hovering near a four-year peak as investors made room for this week's deluge of $258 billion of government debt supply.
The Treasury Department has ramped up its borrowing on the open market in anticipation of a higher deficit from last year's major tax overhaul and a two-year budget deal that will increase federal spending over the next two years.
The government is also relying more on private investors to buy its debt as the Federal Reserve has pared its Treasury purchases in a bid to shrink its $4.4 trillion balance sheet.
Analysts expect decent demand for Tuesday's wave of supply in the wake of a recent market sell-off.
"That's what's priced in, and mainly considers the impact of last year's passed tax cuts and this year's passed increase in spending caps," said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia.
At 11:30 a.m. (1630 GMT), the Treasury will sell $51 billion in three-month bills and $45 billion in six-month bills . Both offerings are the biggest ever for these T-bill maturities.
At 1 p.m. (1800 GMT). it will auction $55 billion in one-month bills and $28 billion in two-year fixed-rate notes .
T-bill and two-year yields are near their highest levels in more than nine years.
In light of the recent market volatility, some investors may be drawn to these short-dated Treasuries as safe havens, analysts said.
Still, concerns about more rate hikes from the Fed and the possibility of further increases in federal borrowing may keep a lid on demand at these auctions, they said.
"I suspect, however, that when the next economic downturn eventually comes, tax receipts fall, and the deficit widens that Treasury spreads will widen further," LeBas said.
At 10:50 a.m. (1550 GMT), the 10-year Treasury yield was 2.902 percent, up 2.5 basis points from late on Friday. It reached 2.944 percent last week, a four-year peak.
The two-year yield was 2.223 percent, 3.4 basis points higher than late Friday.
U.S. financial markets were closed on Monday for the Presidents Day holiday. February 20 Tuesday 10:48AM New York / 1548 GMT
PriceUS T BONDS MAR8 143-29/32-10/3210YR TNotes MAR8 120-96/256 -7/32
PriceCurrent Net
Yield % Change
(bps)Three-month bills 1.5851.61310.005Six-month bills 1.81 1.85150.021Two-year note 99-148/256 2.22290.034Three-year note 99-134/256 2.41650.031Five-year note 98-174/256 2.66170.036Seven-year note 97-232/256 2.83420.03010-year note 98-176/256 2.90230.02530-year bond 97-4/256 3.15460.020
YIELD CURVE Last (bps) Net
Change
(bps) 10-year vs 2-year yield 67.80-0.40 30-year vs 5-year yield 49.10-0.95 DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps) U.S. 2-year dollar swap26.50 0.00spread U.S. 3-year dollar swap21.00 0.25spread U.S. 5-year dollar swap 9.75 0.00spread U.S. 10-year dollar swap1.25-0.25spread U.S. 30-year dollar swap-16.50-1.00spread
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ U.S. Treasury bill, short-to-medium term debt supply ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>(Editing by David Gregorio and Jonathan Oatis)
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