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TREASURIES-Yields stay in comfort zone as traders eye Fed intentions

 (Updates with market activity, Fed news, analyst comment)
    By Ross Kerber
    Sept 18 (Reuters) - U.S. Treasury yields stabilized within
their recent trading ranges on Friday as investors took in new
inflation-tolerant messages from the Federal Reserve.
    The benchmark 10-year yield was up less than a
basis point at 0.6904% in afternoon trading.
    The level was within a six-basis point trading range for the
note this week and close to where it stood on Wednesday before
Fed leaders suggested hike rates could be years away.

    Top Fed officials on Friday began fleshing out how they
would apply their new approach of keeping interest rates near
zero until inflation has hit the Fed's 2% target and is on track
"to moderately exceed" it "for some time."
    Kevin Flanagan, head of fixed income strategy for
WisdomTree, said government bondholders on Friday seemed
cautious that the Fed's strategy would stimulate a fast economic
recovery, despite some positive indications like an estimate by
Atlanta Fed researchers that third-quarter GDP growth will be
32% from the previous quarter.
    "The bond market is keeping these numbers at arms' length,"
Flanagan said.
     U.S. stocks turned lower in volatile trading on Friday as
worries about rising coronavirus cases and a patchy economic
recovery dampened risk sentiment, with technology-related stocks
reversing early gains to extend their declines to a third
day.
    The U.S. current account deficit soared to its highest level
in nearly 12 years in the second quarter as the COVID-19
pandemic weighed on the exports of goods and services, the
Commerce Department said on Friday. 
    U.S. consumer sentiment increased in early September, with
Democrats more upbeat about the economy's outlook compared to
Republicans ahead of the Nov. 3 presidential election, according
to a University of Michigan survey.
    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 55 basis points, roughly unchanged since
Thursday's close and well above the recent low of 33 basis
points on July 24.
    The two-year  U.S. Treasury yield, which
typically moves in step with interest rate expectations, was  up
less than a basis point at 0.1371%.
    
      September 18 Friday 2:26PM New York / 1826 GMT Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.0925       0.0938    0.000
 Six-month bills               0.11         0.1116    0.000
 Two-year note                 99-250/256   0.1371    0.004
 Three-year note               99-232/256   0.1565    0.000
 Five-year note                99-224/256   0.2755    0.005
 Seven-year note               100-52/256   0.4702    0.005
 10-year note                  99-96/256    0.6904    0.008
 20-year bond                  98-52/256    1.227     0.016
 30-year bond                  98-60/256    1.4479    0.021
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         7.50        -0.25    
 spread                                               
 U.S. 3-year dollar swap         7.00         0.25    
 spread                                               
 U.S. 5-year dollar swap         5.75         0.25    
 spread                                               
 U.S. 10-year dollar swap        0.50         0.25    
 spread                                               
 U.S. 30-year dollar swap      -36.50         0.00    
 spread (Reporting by Ross Kerber in Boston;  Editing by Steve Orlofsky
and David Gregorio)
  
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