July 25, 2019 / 6:33 PM / 2 months ago

TREASURIES-Yields rise as ECB's Draghi sees low risk of euro zone recession

 (Adds auction results, updates prices)
    * ECB leaves rates unchanged, signals future easing
    * ECB's Draghi says outlook worsening, but recession risk
low
    * Weak demand for $32 bln seven-year note auction 

    By Karen Brettell
    NEW YORK, July 25 (Reuters) - U.S. Treasury yields rose on
Thursday after European Central Bank President Mario Draghi said
that the bank sees a low risk of a recession in the euro zone,
even as he acknowledged a worsening outlook.
    Yields initially dropped after the central bank, which kept
interest rates unchanged for now, said in its statement it saw
rates at present or lower levels through mid-2020, giving up a
previous pledge to keep rates unchanged through next June. 
    It also tasked its staff to look at various other easing
options including restarting asset purchases.             
    Draghi’s comments regarding a low risk of a recession,
however, changed the direction of the market.             
    "Although he said things such as the outlook is getting
worse and worse, they still see the sign of a recession risk as
pretty low, so the market is interpreting this as somewhat
hawkish," said Jon Hill, an interest rate strategist at BMO
Capital Markets in New York.
    Officials told Reuters after the meeting that an interest
rate cut in September appeared certain, while government bond
purchases and a revamped policy message were also likely.
            
    Benchmark 10-year Treasuries             were last down 7/32
in price to yield 2.097%. The yields fell to 2.011% immediately
after the ECB's statement, the lowest since July 8, and rose as
high as 2.100% after Draghi's comments.
    Weak global growth is leading central banks to ease policy
globally, with the Federal Reserve viewed as certain to cut
rates when it meets next week.
    Interest rate futures traders are pricing in a 79 percent
chance of a 25-basis-point cut and 21 percent likelihood of a
deeper 50-basis-point decrease, according to the CME Group’s
FedWatch tool.
    The next major economic focus for the United States will be
Friday’s Gross Domestic Product (GDP) figures for the second
quarter.
    The Treasury Department sold $32 billion in seven-year notes
to soft demand, the final sale of $113 billion in short and
intermediate-dated notes this week.             
    A $41 billion auction of five-year notes on Wednesday and a
$40 billion sale of two-year notes on Tuesday were also weak.
                         

 (Editing by Sonya Hepinstall and Cynthia Osterman)
  
 
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