July 29, 2019 / 7:07 PM / 4 months ago

TREASURIES-U.S. yields slide as investors await Fed decision

    * Focus on Fed decision; 25 bps rate cut priced in
    * Investors keep an eye on guidance for future Fed cuts
    * Investors also wary the Fed could disappoint
    * No-deal Brexit, global growth worries weigh on U.S. yields

 (Adds new comment, updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, July 29 (Reuters) - U.S. Treasury yields fell
broadly on Monday, in line with government bond markets around
the world amid global economic uncertainty, as investors await a
widely-expected interest rate cut by the Federal Reserve this
week.
    The Fed begins its two-day monetary policy meeting on
Tuesday, with a 25-basis-point rate cut fully priced in.
    "I think we could drift sideways between now and the Fed's
decision on Wednesday," said Tom Simons, senior money market
strategist at Jefferies LLC in New York. "There's some building
in that the Fed may disappoint."
    U.S. Treasuries also tracked core euro zone government bond
yields, which traded just above record lows hit last week after
the European Central Bank last Thursday flagged another round of
easing.
    Mounting concerns about a "no deal" Brexit and general
growth worries are increasing the odds for decisive action from
the European Central Bank. 
    Treasuries also moved in tandem with UK 10-year yields,
which dropped to the lowest in almost three years.
    In afternoon trading, U.S. benchmark 10-year note yields
fell to 2.058%, from 2.081% late on Friday.
    Since the beginning of the year, 10-year yields have fallen
63 basis points, on track for its steepest drop in five years. 
    Yields on 30-year bonds slid to 2.584%, from
2.601% on Friday.
    At the short end of the curve, two-year yields slipped to
1.851%, from Friday's 1.87%.
    With a Fed cut factored in, investors will focus on the
Fed's statement, which should provide guidance on future cuts.
    "Offering forward guidance to indicate there will be
additional accommodation is precisely the tact (Fed Chair
Jerome) Powell will need to employ to offset the risk of a
post-cut disappointment downtrade," BMO Capital Markets said in
a research note. 
    "His success in crafting the message effectively without
over-committing remains to be seen."
    Aside from the Fed decision, this week is heavy in terms of
economic data, headlined by Thursday's U.S. manufacturing report
and Friday's non-farm payrolls report.
    Analysts said the U.S. economy seems to be on a more solid
footing than the rest of the world, but overall sentiment has
been tainted nonetheless.
    "Globally, business sentiment is falling," said Stan
Shipley, fixed income strategist at Evercore ISI in New York. 
"The labor market looks fine in the U.S., consumer spending is
fine, but people are getting worried about business sentiment
and manufacturing. It's not just a U.S. thing, it's global."
    
      July 29 Monday 2:55 PM New York/1855 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2.06         2.1047    -0.013
 Six-month bills               2.04         2.095     -0.008
 Two-year note                 99-206/256   1.8499    -0.020
 Three-year note               99-210/256   1.8125    -0.021
 Five-year note                99-154/256   1.8338    -0.028
 Seven-year note               99-166/256   1.9289    -0.030
 10-year note                  102-212/256  2.0546    -0.026
 30-year bond                  106-28/256   2.5798    -0.021
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         2.25        -0.75    
 spread                                               
 U.S. 3-year dollar swap        -0.50        -0.50    
 spread                                               
 U.S. 5-year dollar swap        -3.25         0.00    
 spread                                               
 U.S. 10-year dollar swap       -8.25        -0.50    
 spread                                               
 U.S. 30-year dollar swap      -37.25        -1.00    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by
Richard Leong; Editing by Dan Grebler)
  
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