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US 10-year, 2-year yields post biggest daily decline in 5

weeks

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Chicago PMI falls in December

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US 2/10 yield curve flattens modestly

(Adds new comment, graphics, updates prices)

By Gertrude Chavez-Dreyfuss

NEW YORK, Dec 30 (Reuters) - U.S. Treasury yields fell

on Monday after last week's significant move higher, with that

of benchmark 10-year notes posting their biggest daily decline

in five weeks, as investors continued to funnel cash into the

bond market following Wall Street losses.

In afternoon trading, the U.S. 10-year yield dropped 7.2

basis points (bps) to 4.549%, its biggest one-day

decline since Nov. 25. On the short end of the curve, the

two-year yield eased 7.4 bps to 4.252%, also its

largest daily retreat in five weeks.

"The sell-off last week probably prompted people to take

profits," said Vinny Bleau, director, fixed income capital

markets, at Raymond James in Memphis.

"I think we had been oversold. We're in a little bit of

consolidation here: the psychological level of 4.50% is probably

where we settle in for a second," he added.

In other maturities, U.S. 30-year yields were down 4.3

bps to 4.768%.

Investors also continued to re-allocate to bonds amid a

sell-off in stocks.

"The bond market has somewhat taken its cue from what's

happening in the equities market," said Jim Barnes, director of

fixed income at Bryn Mawr Trust in Berwyn, Pennsylvania.

"Investors did some profit taking in equities and maybe

re-deployed to fixed income. At this point, the bond market is

compelling given the recent rise in bond yields over the past

weeks."

Since hitting a roughly five-week low on Dec. 6, the

10-year Treasury yield has gained nearly 40 bps. Wall Street

shares, on the other hand, hit their lowest in more than a week

on Monday amid thin volume.

The U.S. yield curve, meanwhile, flattened slightly,

with the spread between two- and 10-year yields at 28.9 bps

, compared with 29.5 bps late on Friday. The curve

had steepened to 30.3 bps on Friday, posting its widest gap

since June 2022.

Monday's modest flattening was viewed as a minor

correction from the steepening trend seen in the last few weeks.

Yield curves tend to be steeper in an easing cycle, with the

short end's rise under control.

Treasury yields also extended their fall after data showed

business activity in the U.S. Midwest fell this month.

The December reading of the Chicago Purchasing Managers

Index was 36.9, down from 40.2 the month before. The consensus

forecast was for an increase to 42.8, according to a Reuters

poll.

"Since the end of the Great Recession in 2009, there have

only been seven prints with a thirty handle for the Chicago PMI,

three of those were during the depths of the pandemic period,"

wrote Lou Brien, market strategist, at DRW trading in Chicago,

in emailed comments.

New orders fell 13.5 points to the second lowest since May

2020, according to the Chicago PMI release, as more than half of

respondents reported fewer new orders for the first time since

June 2020.

U.S. yields didn't really budge even after data showed

contracts to buy previously-owned homes in the United States

rose more than expected in November, notching a fourth straight

month of gains.

The National Association of Realtors (NAR) said on Monday

its Pending Home Sales Index, based on signed contracts, rose

2.2% last month to 79.0 - the highest since February 2023 - from

77.3 in October.

Economists polled by Reuters had forecast contracts,

which become sales after a month or two, would rise 0.9% after

increasing 1.8% in October.