June 21, 2019 / 2:39 PM / 3 months ago

TREASURIES-U.S. prices retreat after steep gains, but bias still for lower yields

    By Gertrude Chavez-Dreyfuss
    NEW YORK, June 21 (Reuters) - U.S. Treasury prices fell on
Friday, as investors cashed in on  sharp 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. 
    U.S. benchmark 10-year Treasury yields dropped on Thursday
below 2% for the first time in more than 2-1/2 years, while
30-year yields plummeted to their lowest since October 2016.
Yields on U.S. 2-year notes slid as well to their weakest level
since mid-November 2017.
    A few analysts believe that as the market digested the Fed's
decision and statement on Wednesday, some have pushed back on
the overall market forecasts of three to four rate cuts.
    "For some people, the Fed seems like it's not rushing to
cut," said Stan Shipley, fixed-income strategist at Evercore ISI
in New York. 
    "Expectations of a 50-basis-point cut or a June cut
immediately were dashed last Wednesday. So if the Fed thinks it
may go 75 basis points in the next six to nine months, people
are thinking they may only go 50 basis points, so 25 and 25," he
added.
    BMO Capital Markets somewhat echoed Shipley's view. In
Friday's research note it said: "The economy hasn't gone off the
rails, but the conductors are getting a bit jittery."
    That said, the market is still positioned for lower yields
going forward, and analysts said it is not wise to bet against
the Fed.
    The Fed on Wednesday set the stage for interest rate cuts
starting next month, saying it is ready to counter growing
global and domestic economic risks amid rising trade tensions
and weak inflation.
    Fed officials, though, still projected the targeted
overnight lending rate to remain in a range of 2.25% to 2.50%
for the rest of this year.
    In morning trading, U.S. 10-year note yields rose to
2.059% from 2.0% late on Thursday.
    "I don't think there's a lot of demand out there for a
10-year note at more than 2.0%," said Evercore's Shipley. "So
people are starting to shorten their duration bets."
    Yields on U.S. 30-year bonds advanced to 2.565%,
from 2.527% on Thursday.
    At the short end of the curve, U.S. 2-year yields were up at
1.796%, from Thursday's 1.728%.
    Yields were little changed overall after the release of
upbeat data on U.S. existing home sales. U.S. 10-year and
30-year yields did hit session highs shortly before the release
of the housing data, and pared gains shortly after.
    U.S. existing home sales increased 2.5% to a seasonally
adjusted annual rate of 5.34 million units last month. April's
sales pace was revised slightly higher to 5.21 million from 5.19
million units.
    
      June 21 Friday 10:06 AM New York / 1406 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2.08         2.1254    -0.011
 Six-month bills               2.0025       2.0562    0.015
 Two-year note                 100-163/256  1.7884    0.060
 Three-year note               100-4/256    1.7445    0.065
 Five-year note                100-234/256  1.8054    0.067
 Seven-year note               101-80/256   1.9218    0.060
 10-year note                  102-220/256  2.054     0.053
 30-year bond                  106-128/256  2.5623    0.035
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         2.00        -0.75    
 spread                                               
 U.S. 3-year dollar swap         1.00        -0.50    
 spread                                               
 U.S. 5-year dollar swap        -2.00         0.00    
 spread                                               
 U.S. 10-year dollar swap       -6.00         0.75    
 spread                                               
 U.S. 30-year dollar swap      -32.25         1.00    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; editing by Jonathan
Oatis)
  
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