February 6, 2019 / 9:15 PM / 2 months ago

TREASURIES-U.S. yields drift lower as Fed rate view still in focus

    * 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)
  
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