TREASURIES-Yields rise as traders look past Omicron

Updates with bond auction details, comment from analyst

By Ross Kerber

Dec 21 (Reuters) - U.S. Treasury yields were higher on Tuesday as traders focused on optimistic economic conditions despite the rapidly spreading Omicron variant of the coronavirus, and discounted inflation fears at a 20-year bond auction.

The moves marked a reversal of sentiment from Monday, when the yield on the benchmark 10-year note US10YT=RR fell as low as 1.353%, the lowest since Dec. 3. In Tuesday afternoon trading the note was up 6.1 basis points at 1.4805%.

Investors seemed to be betting that Omicron's spread would not interrupt economic growth, said Tufts University economist Brian Bethune.

The message from the trading, he said, is that "Omicron is a threat, but it's not going to derail things."

Major U.S. stock indexes were higher, contributing to risk-on sentiment. [nL1N2T61L7]

Demand for a $20 billion auction of 20-year bonds in the early afternoon was strong, with direct bidders accounting for 20.8% the total, a record high since the auctions were restarted last year according to Kim Rupert, senior economist for Action Economics.

Rupert said the results showed the U.S. notes were still popular with worldwide investors at a time when many other nations' debt pays little or no interest. The demand also seemed to show bidders little concerned with inflation at least in the long run.

"There's still a yield grab around the world," she said.

The strong results caused a slight pullback in yields just before the 10-year note was about to climb past 1.5% for the first time since Dec. 13.

That move still left higher a closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes US2US10=RR, seen as an indicator of economic expectations. It was at 80 basis points, about a basis point more than Monday's close.

The two-year US2YT=RR U.S. Treasury yield, which typically moves in step with interest rate expectations, was up 4.3 basis points at 0.6726%.

December 21 Tuesday 3:04PM New York / 2004 GMT

	Price	Current Yield %	Net Change (bps)
Three-month bills US3MT=RR	0.07	0.071	-0.005
Six-month bills US6MT=RR	0.1625	0.1649	0.000
Two-year note US2YT=RR	99-171/256	0.6726	0.043
Three-year note US3YT=RR	100-34/256	0.9547	0.048
Five-year note US5YT=RR	100-26/256	1.2287	0.065
Seven-year note US7YT=RR	100-168/256	1.4004	0.064
10-year note US10YT=RR	99-8/256	1.4805	0.061
20-year bond US20YT=RR	101-112/256	1.9128	0.026
30-year bond US30YT=RR	99-160/256	1.8914	0.043
DOLLAR SWAP SPREADS
	Last (bps)	Net Change (bps)
U.S. 2-year dollar swap spread	24.00	0.50
U.S. 3-year dollar swap spread	18.75	0.25
U.S. 5-year dollar swap spread	11.00	0.50
U.S. 10-year dollar swap spread	7.50	1.25
U.S. 30-year dollar swap spread	-18.00	1.25

(Reporting by Ross Kerber in Boston; Editing by Sonya Hepinstall and Alistair Bell)

((ross.kerber@thomsonreuters.com; (617) 856 4341; Reuters Messaging: Ross.Kerber.Reuters.com@Reuters.net))