May 12, 2020 / 6:02 PM / 21 days ago

TREASURIES-Yields lower after strong 10-year auction demand

 (Updates market activity, Treasury auction results, analyst
comment, details on Fed corporate credit facility details)
    By Ross Kerber
    BOSTON, May 12 (Reuters) - Investors looking for safety as
the economy sputters amid the COVID-19 pandemic sent U.S.
Treasury yields lower on Tuesday, with strong demand for 10-year
notes at an auction.
    The benchmark 10-year yield was down 3.2 basis
points at 0.6938% in afternoon trading.
    Of the $32 billion in competitive bids the Treasury accepted
in auction results announced just after 1 p.m. ET, 21 percent
were submitted by primary dealers. 
    The relatively low figure indicated strong demand from other
bidders, said Tom di Galoma, managing director of Seaport Global
    "There's nowhere else to put your money," he said, noting
the many uncertainties for investments in stocks, foreign
currencies or other asset classes. "At least with Treasuries you
know what you have," he said.
    The U.S. Treasury will also sell 30-year bonds 
on Wednesday. 
    The Federal Reserve, meanwhile, has dialed back its total
purchases of Treasuries to about $35 billion this week from $40
billion last week, and its future purchase plans will do much to
determine interest rates.
    While the Fed has stabilized the bond market, investors are
trying to estimate what level of yield would cause the Fed to
increase its purchases or take other actions, said Priya Misra,
head of global rates strategy for TD Securities. 
    "At 70 basis points on the 10-year (Treasury note), I don't
think the Fed feels any urgency to increase its buying. So the
question is, 'What's the threshold?'" for a change in policy,
she said.
    The Fed on Tuesday was also set to start buying corporate
debt in the secondary market via exchange-traded funds, using a
new credit facility set up last month as part of its broader
market-stabilization efforts.
    U.S. consumer prices dropped by the most since the Great
Recession in April, weighed down by a plunge in demand for
gasoline and services, including airline travel, as consumers
stayed home during the pandemic.
    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 51 basis points, about 2 basis points lower
than at Monday's close.        
    Negative interest rates, once unimaginable in the United
States, have now become a possibility for investors.

    Fed funds futures [0#FF:] were pricing in rates of about a
basis point below zero by April 2021 as the pandemic hammers the
U.S. economy toward its steepest downturn since the Great
    The two-year U.S. Treasury yield, which typically
moves in step with interest rate expectations, was down one
basis point at 0.1708% in afternoon trading.
      May 12 Tuesday 1:06PM New York / 1706 GMT
 US T BONDS JUN0               179-17/32    1-1/32    
 10YR TNotes JUN0              138-216/256  0-56/256  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.13         0.1322    0.000
 Six-month bills               0.1575       0.1598    -0.005
 Two-year note                 99-233/256   0.1708    -0.010
 Three-year note               99-182/256   0.2217    -0.019
 Five-year note                100-38/256   0.3448    -0.014
 Seven-year note               99-184/256   0.5412    -0.023
 10-year note                  107-152/256  0.6938    -0.032
 30-year bond                  114-192/256  1.3928    -0.051
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap         8.50         0.50    
 U.S. 3-year dollar swap         3.25         0.00    
 U.S. 5-year dollar swap         1.00         0.75    
 U.S. 10-year dollar swap       -5.00         1.25    
 U.S. 30-year dollar swap      -50.50         1.75    


 (Reporting by Ross Kerber in Boston; additional reporting by
Kate Duguid in New York; Editing by Dan Grebler)
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