June 21, 2019 / 7:24 PM / a month ago

TREASURIES-Prices drop as investors cash in on 2-day rally

    * 2-year yields post largest rise since April
    * July cut not certain; U.S. economy solid -analyst
    * U.S. existing home sales rise

 (New throughout, updates market activity)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, June 21 (Reuters) - U.S. Treasury prices fell
sharply on Friday, as investors cashed in on steep gains the
last two days that saw yields drop to multi-year lows in the
wake of a Federal Reserve statement that flagged interest rate
cuts this year. 
    The price rally on Thursday pushed U.S. benchmark 10-year
Treasury yields below 2% for the first time in more than 2-1/2
years, while 30-year yields hit their lowest since October 2016.
Yields on U.S. 2-year notes slid to their lowest since
mid-November 2017.
    A few analysts believe the rally that followed the Fed's
decision and statement on Wednesday was overdone and now the
market is ratcheting back forecasts of three to four rate cuts
given that the  U.S. economy, while slowing, remained solid
overall.
    Scott Anderson, chief economist, at Bank of the West in San
Francisco, said even though President Donald Trump has been
pressuring the Fed to cut interest rates, economic arguments for
"panicked rate cuts" as soon as next month are thin right now. 
    "Unless something goes seriously off the rails with the U.S.
economy over the next 30 days ... the case for aggressive rate
cuts will be just as dubious as it is now," he said.
    Still, the market remained positioned for lower rates going
forward.
    The Fed on Wednesday set the stage for interest rate cuts
starting next month, saying it was ready to counter growing
global and domestic economic risks amid rising trade tensions
and weak inflation.
    Yet Fed officials still projected the targeted overnight
lending rate to remain in a range of 2.25% to 2.50% this year.
    In afternoon trading, U.S. 10-year note yields rose to
2.064% from 2.0% late on Thursday. Yields on U.S.
30-year bonds advanced to 2.591%, from 2.527% on
Thursday.
    At the short end of the curve, U.S. 2-year yields were up at
1.778%, from Thursday's 1.728%. 
    Treasury supply is a big focus next week, with debt managers
selling $113 billion in U.S. 2-year, 5-year, and 7-year notes,
including $18 billion in 2-year floating rate notes.  
    Yields showed little reaction overall to  upbeat data on
U.S. existing home sales. U.S. 10-year and 30-year yields hit
session highs shortly before the release of the housing data,
and pared gains after.
    U.S. existing home sales expanded 2.5% to a
seasonally-adjusted annual rate of 5.34 million units last
month.
    
   Friday, June 21 at 1507 EDT (1907 GMT):
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2.065        2.1099    -0.026
 Six-month bills               1.9975       2.051     0.010
 Two-year note                 100-167/256  1.7802    0.052
 Three-year note               100-10/256   1.7364    0.056
 Five-year note                100-236/256  1.8038    0.066
 Seven-year note               101-68/256   1.929     0.067
 10-year note                  102-192/256  2.0661    0.065
 30-year bond                  105-220/256  2.592     0.065
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         1.50        -1.25    
 spread                                               
 U.S. 3-year dollar swap         0.50        -1.00    
 spread                                               
 U.S. 5-year dollar swap        -2.50        -0.50    
 spread                                               
 U.S. 10-year dollar swap       -7.00        -0.25    
 spread                                               
 U.S. 30-year dollar swap      -34.00        -0.75    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; editing by Jonathan
Oatis and David Gregorio)
  
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