July 17, 2018 / 3:07 PM / a month ago

TREASURIES-U.S. yields edge up as Powell's remarks support rate-hike view

    * Fed's Powell sees more jobs growth, tame inflation  
    * Futures imply traders see 89 pct chance of Sept rate hike

 (Updates market action after Powell's speech)
    By Richard Leong
    NEW YORK, July 17 (Reuters) - U.S. Treasury yields rose on
Tuesday, with the two-year yield hovering near a decade high as
Federal Reserve Chairman Jerome Powell was upbeat on the
economy, supporting traders' view of further rate increases from
the U.S. central bank.
    Powell, in testimony about the economy and monetary policy
before a Senate panel, said: "With appropriate monetary policy,
the job market will remain strong and inflation will stay near 2
percent over the next several years."
    Powell downplayed the current friction between the Trump
administration and major U.S. trade partners as a risk to 
business and consumer activities.
    "Right now with the Fed’s gradual rate increases, he will
continue with that approach," said Paula Solanes, portfolio
manager at SVB Asset Management in San Francisco. "He wants to
normalize interest rates because they have been so low for so
long." 
    Interest rates futures implied traders saw about an 89
percent chance the Fed would lift its target range on key
interest rates by a quarter point, to 2.00 percent to 2.25
percent, at its Sept. 25-26 policy meeting, CME Group's
FedWatch program showed.
    That suggested traders priced in about a 63 percent
likelihood of another rate hike at the Fed's Dec. 18-19 policy
meeting.   
    Signs of a slight pick-up in business and consumer
activities in the second quarter had stoked bets the Fed may
consider a faster pace of rate hikes. But the consensus view
remained that the Fed would refrain from turning more aggressive
on hiking rates to avert inverting the yield curve.
    An inverted yield curve, in which short-dated Treasury
yields rise above long-dated ones, has preceded the past five
U.S. recessions.  
    "There's no need for them (Fed policy makers) to
accelerate," said Gennadiy Goldberg, interest rate strategist at
TD Securities in New York. 
    After his appearance in front of the Senate Banking
Committee, Powell will complete his semiannual testimony before
the House Financial Services Committee at 10 a.m. (1400 GMT) on
Wednesday.
    At 10:55 a.m. (1455 GMT), the yield on benchmark 10-year
Treasury notes was 2.860 percent, up marginally from
late on Monday.
    The two-year yield, which is most sensitive to
traders' views on changes in Fed policy, was 2.611 percent,
matching the level set on Monday, which was the highest since
August 2008, according to Reuters data.
    The spread between two-year and 10-year Treasury yields
 was 24.90 basis points, hovering at its tightest
level since July 2007.
July 17 Tuesday 10:56AM New York / 1456 GMT
                               Price                  
 US T BONDS SEP8               145-1/32     -3/32     
 10YR TNotes SEP8              120-32/256   -2/32     
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.9825       2.0203    0.039
 Six-month bills               2.1325       2.1857    0.027
 Two-year note                 99-202/256   2.6112    0.008
 Three-year note               99-212/256   2.6851    0.008
 Five-year note                99-96/256    2.7608    0.009
 Seven-year note               99-128/256   2.8296    0.005
 10-year note                  100-28/256   2.8619    0.006
 30-year bond                  103-12/256   2.9702    0.004
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       24.90        -1.00     
 30-year vs 5-year yield       20.80        0.05      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        22.25        -0.25    
 spread                                               
 U.S. 3-year dollar swap        19.75         0.00    
 spread                                               
 U.S. 5-year dollar swap        13.50         0.00    
 spread                                               
 U.S. 10-year dollar swap        6.00         0.00    
 spread                                               
 U.S. 30-year dollar swap       -4.75         0.00    
 spread                                               
 

    

    
 (Reporting by Richard Leong
Editing by Susan Thomas and Dan Grebler)
  
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