March 2, 2020 / 10:23 PM / a month ago

TREASURIES-U.S. long-dated yields bounce from lows as U.S. stocks rally

    * ECB says to take appropriate action on coronavirus
    * Fed, BoJ, BoE signal possible action to ease coronavirus
impact
    * Markets fully price in Fed rate cut this month
    * U.S. ISM data slows in February

 (Recasts, adds new comment, updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, March 2 (Reuters) - U.S. Treasury prices fell on
Monday as long-dated yields rose from record lows, stocks soared
and investors cheered stimulus measures from global central
banks meant to ease the economic impact of the coronavirus.
    U.S. long-dated yields across the board rose for the first
time in 11 days, while those on two-year notes gained after
seven straight days of declines. 
    European Central Bank President Christine Lagarde said late
on Monday the ECB is ready to take "appropriate and targeted
measures" to fight the economic impact of the coronavirus
outbreak.
    Her comments followed those from the Federal Reserve, Bank
of Japan and Bank of England, which on Friday and earlier on
Monday indicated willingness to support economies hit by the
coronavirus outbreak.
    "We're seeing some positive headlines on the coronavirus and
that's why we saw stocks rally today," said Justin Lederer,
Treasury analyst at Cantor Fitzgerald in New York.
    Fed Chairman Jerome Powell said late on Friday the central
bank will "act as appropriate" to support the economy, which he
said remains in good shape overall.
    Investors expect the Fed to cut rates in March. Fed funds
futures now imply a 50-basis-point cut at the Fed's next
meeting, according to the CME FedWatch.
    BoJ Governor Haruhiko Kuroda also said the Japanese central
bank would take steps to stabilize markets if needed. The Bank
of England said it was assessing "potential impacts" of the
outbreak.
    There have been over 89,000 cases of the virus globally, the
majority in China, according to a Reuters tally. Outside China,
it has spread to 66 countries, with more than 8,800 cases and
130 deaths. Globally, the illness has killed over 3,000 people.

    In afternoon trading, U.S. 10-year yields rose
to 1.166%, from 1.126% late on Friday. During the session,
10-year yields fell to a record low of 1.03%.
    Yields on U.S. 30-year bonds were at 1.722%,
down from 1.651% on Friday, after touching an all-time trough of
1.583%.
    On the short end of the curve, U.S. two-year yields fell to
0.904% from Friday's 0.878%, after hitting a nearly
four-year low of 0.71%.
    The yield curve steepened, with the spread between the
two-year and 10-year widening as much as 34.5 basis points
, the widest since early January. The gap was last
27 basis points.    
    Data showed a slight slowing in U.S. manufacturing activity
for February, with the Institute for Supply Management index 
down to 50.1, from January's 50.9.
    Treasuries firmed modestly after the data, which showed the
sector still slightly in expansion mode, but investors were not
overly focused on economic reports.
    "Suffice it to say, the domestic data is by no means driving
the macro narrative at this stage," BMO's Lyngen said. 
    
      March 2 Monday 5:05 PM New York/2205 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.1825       1.2056    -0.079
 Six-month bills               1.045        1.0679    -0.069
 Two-year note                 100-116/256  0.895     0.017
 Three-year note               101-102/256  0.8941    0.023
 Five-year note                100-242/256  0.9308    0.019
 Seven-year note               100-104/256  1.0645    0.023
 10-year note                  103-68/256   1.1518    0.026
 30-year bond                  106-224/256  1.7059    0.038
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         5.25        -2.25    
 spread                                               
 U.S. 3-year dollar swap         4.75        -0.25    
 spread                                               
 U.S. 5-year dollar swap         6.50         2.75    
 spread                                               
 U.S. 10-year dollar swap       -1.25         3.00    
 spread                                               
 U.S. 30-year dollar swap      -37.50         0.50    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Steve
Orlofsky, David Gregorio, Richard Chang and Dan Grebler)
  
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