February 26, 2019 / 8:18 PM / 8 months ago

TREASURIES-U.S. yields fall as Fed's Powell backs 'patient' stance

    * Powell reaffirms "patient" policy stance despite solid
    * U.S. sells $32 bln 7-year notes to strong investor demand
    * U.S. housing starts tumble to lowest in over two years
    * U.S. consumer confidence rebounds in February

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, Feb 26 (Reuters) - U.S. Treasury yields fell on
Tuesday as Federal Reserve Chair Jerome Powell stood by the
central bank's "patient" stance before raising interest rates
again, even as he expected solid economic growth in 2019.
    The decline in bond yields was also driven by strong
investor demand for $32 billion of U.S. seven-year government
debt, the final part of this week's $113 billion in
coupon-bearing Treasury supply.
    "Patience means the Fed can take its time," said Mary Ann
Hurley, vice president of fixed income at D.A. Davidson in
Seattle. "I think the Fed is on hold for the rest of the year." 
    Powell said before the Senate Banking Committee that
"crosscurrents and conflicting signals" weakened the case for
further rate increases and complicated an otherwise upbeat U.S.
economic outlook.
    The Fed chairman will also appear before the House Financial
Services Committee on Wednesday to wrap up his semi-annual
testimony before Congress.
    Before Powell's Senate testimony, Treasury yields were lower
on data that showed U.S. domestic housing starts dropped 11.2
percent in December to a seasonally adjusted annual rate of
1.078 million units, their weakest pace since September 2016.

    The housing sector showed further weakness at the end of
2018. U.S. home prices across 20 cities appreciated at a 4.2
percent annual pace in December, the slowest since November
2014, according to Case-Shiller.
    At the same time, the Conference Board's index on U.S.
consumer confidence rose strongly in February, rebounding from a
decline due to market volatility and the government shutdown.
    The yield on U.S. benchmark 10-year Treasury notes
 was down 3 basis points at 2.643 percent, which was
at the lower end of its trading range in February.
    Two-year Treasury notes were 2.1 basis points
lower at 2.486 percent.    
    The flagging housing market was one of the worrisome spots
for U.S. policy-makers who took a dovish turn late last year and
signaled they would be patient before raising interest rates
    On the supply front, the U.S. Treasury Department's sale of
$32 billion in a seven-year auction fetched a yield of 2.538
percent, which was the lowest yield at a seven-year auction
since December 2007. Its bid-to-cover ratio was the strongest
since last August.
    Investors this week are the most upbeat on owning
longer-dated Treasuries in about 2-1/2 years, according to a
survey released by J.P. Morgan.
February 26 Tuesday 3:07PM New York / 2007 GMT
 US T BONDS MAR9               146-22/32    18/32     
 10YR TNotes MAR9              122-72/256   8/32      
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             2.41         2.4586    0.001
 Six-month bills               2.455        2.5204    0.000
 Two-year note                 100-7/256    2.4859    -0.021
 Three-year note               100-36/256   2.4504    -0.028
 Five-year note                99-166/256   2.4501    -0.031
 Seven-year note               100-144/256  2.5358    -0.034
 10-year note                  99-216/256   2.6429    -0.030
 30-year bond                  99-184/256   3.0143    -0.018
         YIELD CURVE           Last (bps)   Net       
 10-year vs 2-year yield       15.50        -0.05     
 30-year vs 5-year yield       56.30        1.40      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap         8.75        -0.50    
 U.S. 3-year dollar swap         6.50        -0.50    
 U.S. 5-year dollar swap         5.50         0.50    
 U.S. 10-year dollar swap        0.50         0.25    
 U.S. 30-year dollar swap      -21.25        -0.75    

 (Reporting by Richard Leong, editing by G Crosse)
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