May 13, 2020 / 2:33 PM / 24 days ago

TREASURIES-Sober diagnosis from Fed's Powell leaves yields steady

    By Ross Kerber
    BOSTON, May 13 (Reuters) - U.S. Treasury yields were steady
on Wednesday after Federal Reserve Chair Jerome Powell gave a
solemn assessment of the U.S. economy and renewed his skepticism
of negative interest rates.    
    The benchmark 10-year yield was down 3.1 basis
points in morning trading at 0.6606%.
    That was within a basis point of where the figure stood at 9
a.m. when Powell began remarks in which he said that the country
could face an "extended period" of weak growth and stagnant
incomes because of the COVID-19 pandemic.
    In a talk that was webcast by the Peterson Institute for
International Economics, Powell pledged to use more Fed power as
needed, issued a call for more fiscal spending, and reiterated
the Fed's skepticism of negative interest rates.
    Rates below zero, once unimaginable, have now become a
possibility for investors. Fed funds futures
[0#FF:] were pricing in rates of about a basis point below zero
by June, as the pandemic hammers the U.S. economy toward its
steepest downturn since the Great Depression.[0#FF:]
    Before Powell spoke the same measure priced in rates at half
a basis point below zero by March 2021.
    The muted bond-market reaction underscored how Powell's
message on Wednesday was unchanged from before, that the Fed can
buy policymakers time but that more fiscal stimulus is likely
necessary amid the public-health crisis, said Andrew Richman,
director of fixed income strategies for Truist/SunTrust Advisory
    "The idea is they can help on the lending side, not the
spending side," Richman said.
    Traders were also looking ahead to an early afternoon
auction results from a sale of 30-year notes, after strong
demand for a 10-year issuance on Tuesday.    
    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 50 basis points, within a basis point of
Tuesday's close. 
    The two-year U.S. Treasury yield, which typically
moves in step with interest rate expectations, was down 1.2
basis points at 0.1609% in morning trading.
      May 13 Wednesday 10:02AM New York / 1402 GMT
 US T BONDS JUN0               180-11/32    0-17/32   
 10YR TNotes JUN0              139-32/256   0-44/256  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.125        0.1271    -0.007
 Six-month bills               0.1525       0.1547    -0.005
 Two-year note                 99-238/256   0.1609    -0.012
 Three-year note               99-194/256   0.206     -0.013
 Five-year note                100-70/256   0.3194    -0.016
 Seven-year note               99-244/256   0.5069    -0.020
 10-year note                  99-168/256   0.6606    -0.031
 30-year bond                  115-220/256  1.3509    -0.031
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap         9.75         0.75    
 U.S. 3-year dollar swap         5.25         1.25    
 U.S. 5-year dollar swap         2.00         0.50    
 U.S. 10-year dollar swap       -5.00        -0.50    
 U.S. 30-year dollar swap      -50.00         0.00    

 (Reporting by Ross Kerber; Editing by Andrea Ricci)
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