March 18, 2020 / 8:01 PM / 20 days ago

TREASURIES-Yields higher in volatile session as investors watch U.S. pandemic response

 (Updates with market activity, recasts)
    By Ross Kerber
    BOSTON, March 18 (Reuters) - U.S. Treasury yields touched
high marks late in a volatile trading session on Wednesday as
investors watched for the U.S. response to the coronavirus
pandemic to take shape and said lower trade volumes made market
signals less clear. 
    The benchmark 10-year yield was up 18 basis
points at 1.1767% in afternoon trading after swings that took it
above 1.2% and below 1% at several points during the day. 
    The wide trading ranges seemed to reflect reduced liquidity,
several traders said. FHN Financial interest rate strategist Jim
Vogel said lower trading volumes this month have also reduced
the usefulness of bond market signals for policymakers and
    "At every given two-hour stretch there’s not enough flow to
be able to say precisely what Treasury yields are indicating
other than the last 5 or 6 trades. That’s a form of 
illiquidity," he said.
    Currently, "It’s hard to say what the Treasury market is
really concluding, other than reacting to headlines,” Vogel
    Stan Shipley, macro research analyst for Evercore ISI, said
many traders do not know what to do as they sort out various
moves by central banks and the Trump administration responding
to the health emergency and shoring up the economy.
    "Yields are very volatile right now. There's a lot of
technical issues going on," he said. 
    The two-year U.S. Treasury yield, which typically
moves in step with interest rate expectations, was up 7.3 basis
points at 0.5337% in afternoon trading. 
    The U.S. yield curve, measured as the difference between the
yields on two- and 10-year Treasury notes, was at 62 basis
points, about 6 basis points higher than Tuesday's close and at
its highest levels since early 2018.
    A late-afternoon rise in yields occurred even as U.S. stocks
were extending their fall and were down 9% at one point.
 The U.S. Treasury and Internal Revenue Service said
they would allow U.S. individuals and corporations to defer
making certain tax payments until July 15.
    Cases of the respiratory illness have been reported in all
50 U.S. states and millions of Americans are staying home from
work. The Trump administration on Wednesday asked Congress to
approve $500 billion in cash payments to taxpayers and $50
billion in secured loans to U.S. airlines to address the
financial impact of the coronavirus.    
    The Fed on Tuesday said it would reopen the so-called
Commercial Paper Funding Facility to underwrite the short-term
loans companies often use to fund operations, a key financial
market backstop first set up 2007 to 2009.
    It also extended its reach as the economy's lender of last
resort to the two dozen Wall Street primary dealers, letting
them pledge municipal bonds, corporate debt and equity
securities as collateral for 90-day Fed loans to keep credit
    The New York Fed said it will make up to $1 trillion a day
available for loans in the repurchase agreement (repo) market
for the remainder of this week.
    On Wednesday morning, the New York Fed said it accepted
$85.8 billion in overnight repo bids from primary dealers.
 In another operation later in the day, it accepted
a further $13.2 billion in overnight repo bids.
    March 18 Wednesday 3:33PM New York / 1933 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.02         0.0203    -0.188
 Six-month bills               0.075        0.0761    -0.163
 Two-year note                 101-37/256   0.5337    0.073
 Three-year note               99-134/256   0.6613    0.119
 Five-year note                101-154/256  0.7943    0.144
 Seven-year note               100-66/256   1.0864    0.192
 10-year note                  103-4/256    1.1767    0.181
 30-year bond                  105-104/256  1.7665    0.186
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap         4.75        -2.00    
 U.S. 3-year dollar swap        -2.50        -5.50    
 U.S. 5-year dollar swap         1.75        -4.75    
 U.S. 10-year dollar swap      -13.25        -7.00    
 U.S. 30-year dollar swap      -73.25        -9.00    

 (Reporting by Ross Kerber
Editing by Nick Zieminski and David Gregorio)
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