* U.S. 10-year note auction shows lukewarm demand
* Up next: U.S. 30-year bond auction
* U.S. yields affected by weak German data
(Updates prices; adds comment, U.S. 10-year note auction
results)
By Gertrude Chavez-Dreyfuss
NEW YORK, Feb 6 (Reuters) - U.S. Treasury yields slipped for
a second straight session on Wednesday, trading in narrow
ranges, as investors continued to factor in the Federal
Reserve's dovish bent on interest rates, while concerns about
slowing growth in Germany added pressure.
The Fed last week shifted its stance on monetary policy as
it acknowledged the challenges facing the U.S. economy. Its
remarks suggested it may pause its rate-hike cycle, or even ease
policy if the economy requires it.
A soft U.S. 10-year note auction on Wednesday curbed demand
for Treasuries, as yields came off lows. But yields overall
remained fairly rangebound even though the Fed has reset its
outlook on interest rates.
Justin Lederer, Treasury analyst at Cantor Fitzgerald in New
York, noted that yields are largely back to their range before
the Fed's policy-setting Federal Open Market Committee issued
its statement after last week's meeting.
"Everybody read the Fed comments as dovish and they were.
Obviously, we rallied post-FOMC and we saw a little bit of the
pricing in of a rate cut. But right now, we're kind of more
neutral," Lederer said.
With the Fed in a wait-and-see mode as U.S. data delayed by
the partial shutdown of the federal government now just coming
in, there's no reason for the market not to be in wait-and-see
mode as well, Lederer added.
U.S. yields also moved in tandem with 10-year German bund
yields, which fell after data showed German industrial orders in
December fell 1.6 percent, with analysts anticipating a possible
recession in the euro zone's largest economy.
German 10-year yields fell to a low of 0.15
percent.
"Further disappointment from the German manufacturing sector
received the lion's share of the credit for the drop in 10-year
yields below 2.70 percent," BMO Capital Markets said in a
research note.
In afternoon trading, U.S. 10-year note yields fell to 2.692
percent, from 2.704 percent late on Tuesday.
The U.S. 10-year note auction was lackluster, with the notes
sold at the lowest yield for this debt maturity at an auction
since January 2018. The bid-to-cover ratio, a gauge of demand,
was also lower, at 2.35, versus January's 2.51.
U.S. 30-year bond yields were also down, at 3.03 percent
, from 3.036 percent on Tuesday.
On the short end of the curve, U.S. 2-year yields were flat
at 2.52 percent.
Investors are now looking to the sale of $19 billion in U.S.
30-year bonds on Thursday.
February 6 Wednesday 3:54PM New York / 2054 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 2.37 2.4174 0.000
Six-month bills 2.4375 2.5022 0.000
Two-year note 99-246/256 2.5202 -0.002
Three-year note 100-6/256 2.4919 -0.008
Five-year note 100 2.4999 -0.013
Seven-year note 100-60/256 2.588 -0.012
10-year note 103-176/256 2.6928 -0.011
30-year bond 106-184/256 3.0306 -0.005
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 14.25 -0.25
spread
U.S. 3-year dollar swap 11.50 0.50
spread
U.S. 5-year dollar swap 9.00 0.50
spread
U.S. 10-year dollar swap 2.25 0.00
spread
U.S. 30-year dollar swap -18.75 0.00
spread
(Reporting by Gertrude Chavez-Dreyfuss
Editing by Susan Thomas and Leslie Adler)
