July 29, 2020 / 1:52 PM / 6 days ago

TREASURIES-Awaiting word from the Fed, yields fall back on weak dollar

    By Ross Kerber
    July 29 (Reuters) - U.S. Treasury yields moved back from
earlier increases ahead of a Federal Reserve policy statement
due on Wednesday afternoon, as a lower U.S. dollar drew in
foreign buyers.
    The benchmark 10-year yield was down less than a
basis point at 0.579% in morning trading, after reaching as high
as 0.594% earlier in the session.
    The U.S. dollar fell to a two-year low on Wednesday
as pressure built on the Fed to take a dovish policy stance
while the COVID-19 pandemic continued to surge.
    The dollar's performance made the U.S. government bonds 
more attractive to foreign purchasers and helped drive down
yields, said Guy LeBas, chief fixed income strategist for Janney
Montgomery Scott LLC. A lower dollar also has a stimulative
impact and reduces pressure on the Fed to take further action.
    "Right now the dollar is doing the Fed's work for them,"
LeBas said.
    Fed officials are not expected to offer new economic
projections or to announce any major policy decisions when they
issue a policy statement at 2 p.m. EDT (1800 GMT) or when Fed
Chair Jerome Powell speaks at a press conference a half hour
    But the stakes for the central bank are high as recent data
suggests an economic recovery may have stalled and that
declining trends in unemployment may have reversed. 
    A closely watched part of the U.S. Treasury yield curve
measuring the gap between yields on two- and 10-year Treasury
notes, seen as an indicator of economic
expectations, was at 44 basis points, roughly unchanged from
Tuesday's close but well off the level of 68 basis points it
reached on June 5.
    The two-year  U.S. Treasury yield, which
typically moves in step with interest rate expectations, was
down less than a basis point at 0.1367% in morning trading.
      July 29 Wednesday 9:22AM New York / 1322 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.1075       0.109     0.000
 Six-month bills               0.115        0.117     -0.007
 Two-year note                 99-250/256   0.1367    -0.006
 Three-year note               99-230/256   0.1594    -0.006
 Five-year note                99-242/256   0.261     -0.005
 Seven-year note               99-154/256   0.4328    -0.008
 10-year note                  100-112/256  0.579     -0.002
 20-year bond                  102-24/256   1.008     0.000
 30-year bond                  100-168/256  1.2236    0.001
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap         7.50         0.25    
 U.S. 3-year dollar swap         5.75         0.00    
 U.S. 5-year dollar swap         3.50         0.00    
 U.S. 10-year dollar swap       -0.50         0.50    
 U.S. 30-year dollar swap      -40.50         0.50    

 (Reporting by Ross Kerber in Boston; Editing by Steve Orlofsky)
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