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US two-year, five-year note auctions show lackluster

results

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US Q4 financing estimates lower than July forecast

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Investors look ahead to Treasury refunding, US payrolls

(Adds new comments, byline, bullets, graphic, Treasury note

auctions, updates prices)

By Gertrude Chavez-Dreyfuss and Karen Brettell

NEW YORK, Oct 28 (Reuters) - U.S. Treasury yields hit

three-month highs on Monday, lifted by improved risk sentiment

as Wall Street stocks rose ahead of key tech earnings reports

this week, while weak government auctions highlighted soft

demand before next week's U.S. presidential election.

Yields on U.S. two-year notes to 30-year bonds climbed

to roughly three-month peaks.

Investors are also looking to Friday's U.S. nonfarm

payrolls data, a key economic report ahead of the Federal

Reserve's two-day policy meeting starting on Nov. 6.

"The bond vigilantes have risen again like they did in

October of 2023," said Greg Faranello, head of U.S. rates

strategy at AmeriVet Securities in New York, referring to

investors selling bonds to protest massive fiscal spending,

pushing yields higher.

"And they have a window here and (are) leaning on it.

Risk is holding in. Some years later this is not the same bond

market."

Weak demand at Monday's U.S. two-year and five-year note

auctions made sense given a slew of events this week and next,

analysts said. More Treasury supply is coming with Tuesday's

sale of U.S. seven-year notes, along with a refunding

announcement on Wednesday.

In afternoon trading, benchmark U.S. 10-year yields

jumped to their highest since July 11, at 4.3%. It

was last up 4.4 basis points at 4.274%.

The U.S. 30-year yield touched its highest since early

July, of 4.555%. It last changed hands at 4.524%,

up 2.4 bps.

The U.S. five-year yield also rose to a three-month

high, last trading up 5.3 bps at 4.105%.

The five-year note auction priced with a high yield of

4.138%

, above the expected rate at the bid deadline, suggesting

investors demanded a premium to buy the note.

The two-year note auction was similarly soft, with a

high yield of

4.13%

, higher than the expected rate.

U.S. two-year yields, which reflect interest rate moves

by the Fed, stormed to their highest since early August. It last

traded up 3.5 bps at 4.133%.

Treasury yields have jumped this month as traders priced in

a stronger U.S. economy, and less dovish Fed. Rising speculation

that Republican former President Donald Trump will win the Nov.

5 presidential election has added to the move.

U.S. yields showed little reaction to Monday's release of

U.S. financing estimates for the fourth quarter.

The U.S. Treasury Department said it plans to

borrow $546 billion

in the fourth quarter, $19 billion less than the July

estimate. It will announce refunding plans including auction

sizes for the November-to-January period on Wednesday.

"The borrowing projections for both Q4 and Q1 are close

to expectations overall, so we have no reason to deviate from

our expectations for unchanged coupon auctions," wrote Tom

Simons, U.S. economist, at Jefferies in a research note.

"The primary intrigue will lie within the guidance about

future quarters, as Treasury indicated an expectation of steady

coupon auction sizes 'for the next several quarters' in May and

August.

For jobs data due on Friday, recent hurricanes affecting

areas including North Carolina could impact the numbers. "Given

all the volatility around hurricanes, I think it's going to be

very interesting to see what the market reaction is going to be

to the data," said Subadra Rajappa, head of U.S. rates strategy

at Societe Generale in New York.

Employers are expected to have added 123,000 jobs in

October, while the unemployment rate is likely to stay steady at

4.1%, economists polled by Reuters said.

Traders priced out the likelihood of additional 50 basis

point rate cuts after a much stronger-than-expected jobs report

for September. The market now sees 95% odds of a 25-bp cut next

week and a 5% chance of a pause, according to LSEG calculations.

Rate futures have also priced in 43 bps in rate

reductions for 2024, a scenario that indicates the Fed may pause

in December.