July 9, 2019 / 8:04 PM / 3 months ago

TREASURIES-U.S. yields tick up, curve flattens as market awaits Fed

 (Adds auction details, analyst quote; updates throughout)
    By Kate Duguid
    NEW YORK, July 9 (Reuters) - U.S. Treasury yields ticked up
on Tuesday in muted trading ahead of the release of June's
Federal Reserve meeting minutes on Wednesday.
    Yields at the short end of the curve moved more than at the
long end, extending a multi-day trend as the market awaited the
Federal Open Market Committee minutes, and Fed Chair Jerome
Powell's congressional testimony on Wednesday. Both may provide
insight into an expected interest rate cut this month. 
    The two-year Treasury bond yield            was last up 3.1
basis points at 1.911%, the highest since mid-June. The
benchmark 10-year yield             was last up 2.7 basis points
to 2.061%.
    Stronger-than-expected employment growth in June tempered
expectations that the Fed would cut interest rates by 50 basis
points at its July meeting, but a 25 basis point cut remains
fully priced in by the market. The probability of a 25-point cut
was 96.2% on Tuesday, with a 3.8% chance of a 50-point cut. A
week prior, those forecasts were 75% and 25% respectively. 
    The "expectation that we would get a weaker-than-expected
payrolls number (has) thrown traders off their game, at least
for now," said Kevin Giddis, head of fixed income capital
markets at Raymond James. "Today and the rest of this week we
will give heavy weight to what the Fed says."  
    The spread between two- and 10-year yields               ,
the most common measure of the yield curve, fell in early trade
to 14.2 basis points, its lowest since May 31. It was last at
14.9 basis points.
    Powell will deliver the Fed's semiannual monetary policy
report to the House of Representatives Financial Services
Committee on Wednesday, followed by testimony before the Senate
Banking Committee on Thursday.
    Some analysts noted that the meeting minutes would be more
likely to move markets than Powell's remarks.
    "We're watching the minutes that are coming out tomorrow.
That's the big thing," said Wen Lu, interest rates strategist at
TD Securities.
    "I don't think there's going to be anything significant that
comes out of the testimony," said Lu. "It will be extremely
    On Tuesday, the Treasury Department auctioned off $38
billion of new three-year notes to solid demand. Direct bidders
took 17.92% of the offering, indirect bidders took 48.5% and
primary dealers took 33.58%. The bid-to-cover ratio was 2.39,
the lowest since March 2009.  

 (Reporting by Kate Duguid; Editing by Bernadette Baum, Chizu
Nomiyama and Richard Chang)
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