October 24, 2019 / 8:15 PM / a month ago

TREASURIES-U.S. yields inch higher in rangebound trading; Fed in focus

    * U.S. data -- durables, housing and jobless claims -- were
    * Fed meeting looms next week, rate cut is priced in
    * U.S. 7-year note auction shows solid demand

 (Recasts, adds new comment, updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Oct 24 (Reuters) - U.S. Treasury yields edged
higher on Thursday after trading lower for much of the session,
as investors consolidated positions ahead of next week's Federal
Reserve monetary policy meeting that is expected to result in an
interest rate cut for a third time this year.
    U.S. 10-year and two-year note yields also hit key technical
resistance that thinned buying, analysts said. 
    The trend so far this week has been to buy Treasuries and
push yields lower amid increasing economic, political, and
global uncertainty.
    Issues surrounding Britain's exit from the European Union,
the impeachment inquiry into U.S. President Donald Trump and
mounting evidence of U.S. economic weakness have dampened
Treasury yields.
    Analysts noted that even the one bright spot, Washington's
"phase 1" deal with Beijing on trade matters, has yet to be put
to paper.
    That said, Kim Rupert, managing director of global fixed
income at Action Economics in San Francisco, said things are not
dire as some market participants believe.
    "A Fed cut is priced in next week, but the market seems to
be getting cold feet on further easing down the road," Rupert
said. "The economy doesn't look that bad. There are chances of a
U.S.-China trade deal and Brexit may be resolved, so a lot of
the risks have diminished."
    Recent U.S. economic numbers have been mixed, suggesting
some weakening in the economy, but not a recession. 
    Thursday's data showed new orders for key U.S.-made capital
goods fell more than expected in September and shipments
declined, while sales of new U.S. single-family homes also slid
in September.
    But U.S. initial jobless claims were better than expected.  
    In afternoon trading, U.S. 10-year note yields
rose to 1.771% from 1.759% late on Wednesday.
    Yields on 30-year bonds were up at 2.267%, from 
2.251% on Wednesday.
    On the short-end of the curve, U.S. two-year yields edged up
to 1.587%, from Wednesday's 1.582%.
    On Thursday, the U.S. Treasury's auction of $32 billion in
seven-year notes, the final coupon supply for October, showed
decent demand, after two strong sales of  two-year and five-year
notes this week.
     The seven-year note picked up a high yield of 1.657%, much
lower than the expected rate at the bid deadline. There were
$78.6 billion  in bids, resulting in a 2.46 bid-to-cover ratio,
a gauge of demand, which slightly lower from September's 2.49
cover but modestly above the 2.44 average.
    "Though rates remain historically rich, they are
nevertheless palatable, considering the likelihood of a Fed
easing next week, along with lingering growth worries, and
expectations for ongoing accommodation from most major central
banks that should limit upside pressures," Action Economics said
in its blog after the seven-year note auction.
      October 24 Thursday 3:59PM New York / 1959 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.6425       1.6768    0.018
 Six-month bills               1.62         1.6605    0.016
 Two-year note                 99-214/256   1.5837    0.002
 Three-year note               99-102/256   1.5829    0.003
 Five-year note                99-148/256   1.5881    0.007
 Seven-year note               99-168/256   1.6777    0.008
 10-year note                  98-180/256   1.7695    0.011
 30-year bond                  99-176/256   2.2644    0.013
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap         3.00        -0.25    
 U.S. 3-year dollar swap        -1.00         0.00    
 U.S. 5-year dollar swap        -2.25         0.00    
 U.S. 10-year dollar swap       -8.00         0.00    
 U.S. 30-year dollar swap      -38.25        -0.25    
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by David
Gregorio and Tom Brown)
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