August 7, 2019 / 9:33 PM / a month ago

TREASURIES OUTLOOK-Recession fears hammer U.S. 30-year yields to near-record low

    * Soft demand hits U.S. $27 billion 10-year note sale  
    * Rate cuts by Asian central bank spur more bond buying
    * Fed's Evans signals support for lower U.S. rates
    * Long-dated German yields fall to record lows

 (Repeats to additional subscribers)
    By Richard Leong
    NEW YORK, Aug 7 (Reuters) - U.S. Treasury yields tumbled on
Wednesday, with 30-year yields approaching record lows, on
growing fears over a global economic downturn and bets the
Federal Reserve would have to pick up its pace of interest rate
cuts to counter recession risks.
    A closely watched U.S. recession indicator, the premium on
three-month Treasury bill rates over 10-year Treasury yields
elevated to its highest level since March 2007. 
    Bond yields fell around the world with German yields hitting
record lows in negative territory. That came in the wake of 
several Asian central banks lowering their key interest rates to
address growth concerns stemming from the escalating trade war
between China and United States.
    Rate cuts in New Zealand, India and Thailand touched off a
flood of buying of longer-dated bonds in Asia, which persisted
into European and U.S. trading, analysts said.
    "The delivery of rate cuts from central banks overseas added
fuel to the rally," said Jonathan Cohn, interest rate strategist
at Credit Suisse in New York.
    However, investor demand at an auction of $27 billion of
10-year government notes turned out softer than
expected, selling at a yield of 1.670%, the lowest in three
years.
    The 10-year note sale is part of this week's $84 billion
quarterly refunding which is expected to raise $26.7 billion in
cash for new federal spending.   
    On the open market, the yields on benchmark 10-year notes
 were 2.80 basis points lower at 1.711%. They had
fallen earlier to 1.595%, the lowest since October 2016.
    The prices on 30-year or long bonds at one point were up as
much as 3 points, for a sixth day of gains.
    Thirty-year yields were down 3.60 basis points
at 2.234% after it hit 2.123% earlier, which was not far from an
all-time low of 2.089% set in July 2016, according to Refinitiv
data.
    U.S. yields backed away from their earlier lows on the soft
10-year auction and Wall Street recovering from its initial
losses in late trading, curbing the safe-haven bids for bonds.

    Interest rates futures suggested traders are building bets
the Fed would cut interest rates three more times by year-end to
avert a recession.
    Chicago Fed President Charles Evans signaled on Wednesday he
was open to lowering interest rates to bolster inflation and to
counter risks to economic growth from trade tensions.

    "The bond market is saying the Fed is keeping policy rates
too high," said John Briggs, head of strategy, Americas, at
NatWest Markets in Stamford, Connecticut.
    Investors' anxiety about a recession heightened the
inversion between three-month bills and 10-year yields, which 
hit 39 basis points earlier on Wednesday, a level not seen since
March 2007. It was last at 31 basis points, flat on the day.
August 7 Wednesday 3:46PM New York / 1946 GMT
                               Price                  
 US T BONDS SEP9               161-15/32    15/32     
 10YR TNotes SEP9              129-236/256  5/32      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.9825       2.0202    -0.029
 Six-month bills               1.905        1.9556    -0.046
 Two-year note                 100-80/256   1.5888    -0.022
 Three-year note               99-236/256   1.5267    -0.024
 Five-year note                101-16/256   1.5275    -0.018
 Seven-year note               101-182/256  1.6147    -0.017
 10-year note                  105-232/256  1.7156    -0.023
 30-year bond                  113-192/256  2.2396    -0.030
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       12.30        0.80      
 30-year vs 5-year yield       71.00        -0.75     
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        -2.00        -1.75    
 spread                                               
 U.S. 3-year dollar swap        -5.00        -1.25    
 spread                                               
 U.S. 5-year dollar swap        -8.50        -2.75    
 spread                                               
 U.S. 10-year dollar swap      -13.00        -2.75    
 spread                                               
 U.S. 30-year dollar swap      -42.00        -2.75    
 spread                                               
 
  

    
 (Reporting by Richard Leong; Editing by Bernadette Baum, Nick
Zieminski and Sonya Hepinstall)
  
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