May 11, 2020 / 6:21 PM / 22 days ago

TREASURIES-Yields higher as traders look for next policy steps

 (Updates with market activity, analyst comment, auction
    By Ross Kerber
    BOSTON, May 11 (Reuters) - Traders pushed U.S. Treasury
yields higher on Monday as they anticipated new government
securities being issued to pay for massive stimulus efforts to
prop up the economy amid the COVID-19 pandemic. 
    The benchmark 10-year yield was up 3.9 basis
points at 0.7195%.
    Yields on other instruments also were higher, in contrast to
Friday, when two-year Treasury yields hit record lows on
concerns the Federal Reserve could cut rates into negative
territory. [ 
    Although the U.S. economy lost a staggering 20.5 million
jobs in April, Fed officials have generally opposed negative
rates. Atlanta Fed President Raphael Bostic said on Monday he is
"not a big fan" of the idea.
    Cantor Fitzgerald analyst Justin Lederer said the market is
expecting Fed Chair Jerome Powell to offer a similar message
when he speaks on Wednesday morning. Unless the Fed radically
reverses course, Lederer said, "you shouldn't have the front-end
going anywhere." 
    The two-year U.S. Treasury yield, which typically
moves in step with interest rate expectations, was up 2.8 basis
points at 0.1768% on Monday afternoon. 
    Results of an auction of three-year notes released at 1 p.m.
showed 29.94% of the offer was accepted at a high yield of
0.23%. The results indicated demand was "a tiny bit
stronger" than expected, Lederer said.
    The U.S. Treasury is also scheduled to auction $32 billion
worth of 10-year notes on Tuesday and $22 billion worth of
30-year notes on Wednesday.
    On Monday, the fed funds futures market priced in negative
rates of about one basis point in June 2021, [0#FF:] showing
less of a chance of negative rates than traders expected on
    The likelihood the Fed will avoid rate hikes anytime soon
has kept investors in short-term securities, said Michael
Lorizio, senior fixed income trader for Manulife Investment
Management in Boston.
    "The front end of the curve is an easy place to own," he
said. "There are forecasts for the next rate hike to come
sometime in 2023; it's as good as any prediction but it's still
just a guess," he said.
    The S&P 500 ticked higher on Monday as gains in healthcare
and technology stocks countered losses in financials, while
investors kept an eye on new coronavirus cases as several
countries ease lockdowns.
    A closely watched part of the U.S. Treasury yield curve
measuring the gap between yields on two- and 10-year Treasury
notes, seen as an indicator of economic
expectations, was at 54 basis points, about 2 basis points 
higher than on Friday's close.
  May 11 Monday 1:51PM New York / 1751 GMT
 US T BONDS JUN0               178-21/32    -1-1/32   
 10YR TNotes JUN0              138-176/256  -0-68/25  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.1175       0.1195    0.002
 Six-month bills               0.155        0.1577    0.011
 Two-year note                 99-230/256   0.1768    0.028
 Three-year note               100-16/256   0.2286    0.022
 Five-year note                100-28/256   0.3528    0.029
 Seven-year note               99-152/256   0.5595    0.033
 10-year note                  107-88/256   0.7195    0.039
 30-year bond                  113-148/256  1.4376    0.055
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap         8.00        -1.75    
 U.S. 3-year dollar swap         3.25        -1.00    
 U.S. 5-year dollar swap         0.50        -1.25    
 U.S. 10-year dollar swap       -5.25        -0.75    
 U.S. 30-year dollar swap      -51.50        -1.25    

 (Reporting by Ross Kerber;
Editing by Nick Zieminski and Dan Grebler)
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