January 28, 2020 / 2:44 PM / a month ago

TREASURIES-Yields bounce from three-month lows

 (Recasts with yield increase; adds quote, data; updates prices)
    * Three-month, 10-year yield curve briefly inverts
    * Yields get technical support at bottom of recent range
    * Treasury to sell $32 bln seven-year notes

    By Karen Brettell
    NEW YORK, Jan 28 (Reuters) - Benchmark 10-year Treasury
yields bounced off three-month lows on Tuesday, after a key part
of the yield curve briefly inverted for the first time since
October, as investors continued to assess the economic impact
from a virus outbreak in China.
    The death toll from the virus topped 100 overnight and a
number of governments and multinational companies are
restricting travel to China.
    Benchmark 10-year note yields fell as low as
1.57% overnight, the lowest since Oct. 10, before rising back to
    The yield curve between three-month notes and 10-year
government bonds briefly inverted to to -0.015 basis point
,, its lowest since October, before
returning to 5 basis points.
    An inverted curve, when longer-dated yields fall below
shorter-maturity ones, has been a fairly reliable signal that a
U.S. recession will follow one to two years later. 
    It inverted last March for the first time since the
financial crisis. The yield curve can revert and reinvert many
times before a recession hits.
    Yields likely bounced off their lows as they hit technical
support at the bottom of their recent range, said Subadra
Rajappa, head of U.S. rates strategy at Societe Generale in New
    “I think this might just be us reaching some technical
points where it’s really hard to break through the 1.60% level,”
Rajappa said.
    The 10-year yields have dropped from a high of 1.76% on
Friday as fears about the spreading virus hit risk assets and
increased demand for safe-haven bonds.
    Investors are also preparing for a $32 billion sale of
seven-year notes on Tuesday. The Treasury Department sold $40
billion in two-year notes and $41 billion in five-year notes on
Monday to slightly soft demand.
    The Federal Reserve is expected to leave rates unchanged
when it concludes its two-day meeting on Wednesday.
    The recent drop in yields, however, shows an increasing
expectation that the U.S. central bank will cut rates later this
    Interest rate futures traders are pricing in a 59% chance of
a rate cut in September, according to the CME Group’s FedWatch
    Data on Tuesday showed that new orders for key U.S.-made
capital goods dropped by the most in eight months in December
and shipments were weak, suggesting business investment
contracted further in the fourth quarter and was a drag on
economic growth.
      January 28 Tuesday 9:22AM New York / 1422 GMT
                               Price        Current   Net Change
                                            Yield %   (bps)
 Three-month bills             1.535        1.5667    0.000
 Six-month bills               1.535        1.5728    -0.002
 Two-year note                 99-225/256   1.4366    0.002
 Three-year note               100-56/256   1.4242    0.010
 Five-year note                99-166/256   1.4482    0.011
 Seven-year note               101-96/256   1.5397    0.014
 10-year note                  101-40/256   1.6217    0.017
 30-year bond                  106-192/256  2.0702    0.015
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap         6.75         2.25    
 U.S. 3-year dollar swap         2.50         0.50    
 U.S. 5-year dollar swap        -0.25         0.50    
 U.S. 10-year dollar swap       -5.25         0.75    
 U.S. 30-year dollar swap      -31.25         1.25    


 (Reporting by Karen Brettell; additional reporting by Dhara
Ranasinghe and Sujata Rao in London; editing by Jonathan Oatis)
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