September 17, 2019 / 1:34 PM / a month ago

TREASURIES-Yields edge lower before Fed meeting

    * Fed expected to cut rates on Wednesday
    * Soaring repo costs show stress in funding markets
    * Higher oil prices, Iran tension boosts safety buying

    By Karen Brettell
    NEW YORK, Sept 17 (Reuters) - U.S. Treasury yields edged
lower on Tuesday, ahead of an expected interest rate cut by the
Federal Reserve at the conclusion of its two-day policy meeting
on Wednesday.
    While a rate cut is seen as near-certain this month, there
are deep disagreements among Fed policymakers on whether it or
further decreases are warranted.             
    Investors will focus on the so-called “dot plot,” which
shows where policymakers expect rates to be in the future.
    “The dot plot will be interesting. I would expect to see a
lot more dispersion between all the dots going forward
especially as we know there are a lot of contrasting views at
the Fed right now,” said Justin Lederer, an interest rate
strategist at Cantor Fitzgerald in New York.
    The U.S. central bank will also be under pressure to address
stress in the U.S. funding markets. 
    The cost for banks and Wall Street dealers to borrow dollars
in the overnight repurchase agreement market           rose as
high as 10% on Tuesday, well above the Fed’s target range of
    “The Fed’s going to have to in some way address what’s going
on in the funding markets,” Lederer said.
    Safe-haven U.S. debt was also bid on concern that an attack
on Saudi Arabian crude oil facilities could lead to further
spikes in oil costs, weighing on the economy, and potentially
spur a war between the United States and Iran.
    U.S. President Donald Trump said on Monday that it looked
like Iran was behind the weekend strike on the Saudi facilities,
which cut 5% of global production, but stressed he did not want
to go to war. Iran denied it was to blame.             
    Benchmark 10-year notes             were last up 4/32 in
price to yield 1.829%, down from 1.843% on Monday.
    Data on Tuesday showed that U.S. manufacturing output
increased more than expected in August, boosted by a surge in
machinery and primary metals production.             

 (Editing by Bernadette Baum)
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