TREASURIES-Yields spike after weak seven-year auction

 (Recasts with seven-year auction, adds quotes, updates prices)
    By Karen Brettell
    NEW YORK, March 25 (Reuters) - Treasury yields jumped on
Thursday after the Treasury Department saw tepid interest for an
auction of seven-year notes for the second month in a row,
though yields came off their highs as quarter-end rebalancing
was seen as boosting demand for bonds.
    The $62 billion in seven-year notes sold at a high yield of
1.30%, two basis points higher than where the debt traded before
the sale. The bid-to-cover ratio was below average at 2.23
    “It shows you the market is still nervous,” said Gennadiy
Goldberg, an interest rate strategist at TD Securities in New
York. “It was a reminder to the market that supply events are
now risky.”
    The auction was in focus after very weak demand in a sale of
the notes last month sparked a dramatic selloff across all
Treasury maturities.
    Seven-year note yields got as high as 1.293%,
before retracing to 1.217%. Benchmark 10-year note yields
 rose to 1.642%, before falling back to 1.616%.
    Yields have surged this year on optimism that the economy
will recover quickly from COVID-19 related business shutdowns.
    Expectations that the Fed could be closer to paring bond
purchases as the economy improves have added to bond weakness.
At the same time the U.S. central bank has committed to holding
rates near zero for years to come, which could spur stronger
economic growth and higher inflation.
    Rising supply is an additional headwind for the market after
the Federal government launched new stimulus and plans trillions
in infrastructure spending.
    “People are really starting to worry about deficits and
infrastructure programs that may be coming down the road,” said
Tom di Galoma, a managing director at Seaport Global Holdings in
New York.
    Investors are “backing away from bidding aggressively for
Treasury debt," di Galoma said. “There’s too much coming down
the road that could severely push rates higher.”
    U.S. President Joe Biden next week will travel to Pittsburgh
to unveil a multitrillion-dollar plan to rebuild America's
    A short burst of selling on Thursday morning was also seen
with a brief spike in trading volumes in long-dated Treasury
futures, while the five-year, 30-year Treasury yield curve
steepened relatively sharply.
    Still, demand for bonds as investors rebalance portfolios
for quarter-end is seen as likely to support the market in the
coming days.
    “We’re focused on the flows associated with rotation out of
equities and into bonds as people close the books on the first
quarter of 2021,” said Ian Lyngen, head of U.S. rates strategy
at BMO Capital Markets in New York.
    March 25 Thursday 3:00PM New York / 1900 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.02         0.0203    0.000
 Six-month bills               0.035        0.0355    -0.005
 Two-year note                 99-250/256   0.1367    -0.008
 Three-year note               99-224/256   0.2923    -0.008
 Five-year note                99-170/256   0.8187    -0.017
 Seven-year note               99-24/256    1.262     -0.007
 10-year note                  95-136/256   1.6156    0.002
 20-year bond                  94-80/256    2.2305    0.023
 30-year bond                  90-44/256    2.3335    0.018
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        11.75         0.50    
 U.S. 3-year dollar swap        13.50         0.25    
 U.S. 5-year dollar swap         9.75        -1.00    
 U.S. 10-year dollar swap        3.00         1.25    
 U.S. 30-year dollar swap      -24.00         1.25    
 spread (Editing by Nick Zieminski)