February 26, 2019 / 5:43 PM / 5 months ago

TREASURIES-U.S. yields fall as Fed's Powell reaffirms patience

    * Powell reaffirms "patient" policy stance despite solid
    * U.S. to auction $32 bln 7-year notes at 1 p.m. EST
    * U.S. housing starts tumble to lowest in over two years
    * U.S. consumer confidence rebounds in February

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, Feb 26 (Reuters) - U.S. Treasury yields fell on
Tuesday as Federal Reserve Chair Jerome Powell stood by the
central bank's "patient" stance before raising interest rates
again, even as he expected solid economic growth in 2019.
    The decline in bond yields was stalled by some selling among
investors who were preparing for a sale of $32 billion worth of
U.S. seven-year government debt at 1 p.m. EST (1800 GMT).
    "There is nothing here to suggest the Fed will move rates
before mid-year at least," Omair Sharif, senior U.S. economist
at Societe Generale in New York, said of Powell's prepared
speech before the Senate Banking Committee.
    Powell said "crosscurrents and conflicting signals" weakened
the case for further rate increases and complicated an otherwise
upbeat U.S. economic outlook.
    The Fed chairman will also appear before the House Financial
Services Committee on Wednesday to wrap up his semi-annual
testimony before Congress.
    Before Powell's Senate testimony, Treasury yields fell to
session lows on data that showed U.S. domestic housing starts
dropped 11.2 percent in December to a seasonally adjusted annual
rate of 1.078 million units, their weakest pace since September
    The housing sector showed further weakness at the end of
2018. U.S. home prices across 20 cities appreciated at a 4.2
percent annual pace in December, the slowest since November
2014, according to Case-Shiller.
    At the same time, the Conference Board's index on U.S.
consumer confidence rose strongly in February, rebounding from a
decline due to market volatility and the government shutdown.
    At 12:28 p.m. EST, the yield on U.S. benchmark 10-year
Treasury notes was down 2.3 basis points at 2.650
    Two-year Treasury notes were 1.5 basis points
lower at 2.492 percent.    
    The flagging housing market was one of the worrisome spots
for U.S. policy-makers who took a dovish turn late last year and
signaled they would be patient before raising interest rates
    On the supply front, the U.S. Treasury Department's sale of
$32 billion in seven-year government notes
follows solid investor demand for Monday's auctions of two-year
and five-year Treasuries.
    Investors this week are the most upbeat on owning
longer-dated Treasuries in about 2-1/2 years, according to a
survey released by J.P. Morgan.
    In "when-issue" activity, traders expected the seven-year
issue to sell at a yield of 2.551 percent, which
would be the lowest yield since December 2017, according to
   Tuesday, Feb. 26 at 1228 EST (1728 GMT):
 US T BONDS MAR9               146-15/32    11/32     
 10YR TNotes MAR9              122-56/256   6/32      
                               Price        Current   Net
                                            Yield     Change
                                            (pct)     (bps)
 Three-month bills             2.41         2.4586    0.001
 Six-month bills               2.4525       2.5178    -0.002
 Two-year note                 100-4/256    2.492     -0.015
 Three-year note               100-30/256   2.4586    -0.019
 Five-year note                99-158/256   2.4568    -0.024
 Seven-year note               100-132/256  2.5432    -0.027
 10-year note                  99-200/256   2.6501    -0.023
 30-year bond                  99-136/256   3.0239    -0.008
         YIELD CURVE           Last (bps)   Net       
 10-year vs 2-year yield       15.60        0.05      
 30-year vs 5-year yield       56.60        1.70      
 DOLLAR SWAP SPREADS                                  
                               Last (bps)   Net       
 U.S. 2-year dollar swap         8.50        -0.75    
 U.S. 3-year dollar swap         6.25        -0.75    
 U.S. 5-year dollar swap         5.25         0.25    
 U.S. 10-year dollar swap        0.25         0.00    
 U.S. 30-year dollar swap      -21.75        -1.25    

 (Reporting by Richard Leong, editing by G Crosse)
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