May 12, 2020 / 1:52 PM / 14 days ago

TREASURIES-Yields steady ahead of long-term auctions

    By Ross Kerber
    BOSTON, May 12 (Reuters) - U.S. Treasury yields held steady
on Tuesday as traders tried to parse the Federal Reserve's
appetite for the securities while the economy sputters amid the
COVID-19 pandemic.
    The benchmark 10-year yield was down less than a
basis point at 0.7241% in morning trading.
    Investors were looking ahead to an early afternoon auction
of 10-year notes by the Treasury, and another of 30-year bonds 
 on Wednesday.
    The Fed 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 future 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. 
    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 54 basis points, about a basis point higher
than 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
half a basis point below zero by June 2021 as the pandemic
hammers the U.S. economy toward its steepest downturn since the
Great Depression.
    The two-year  U.S. Treasury yield, which
typically moves in step with interest rate expectations, was  up
less than a basis point at 0.1828% in morning trading.
    
    May 12 Tuesday 9:27AM New York / 1327 GMT
                               Price                  
 US T BONDS JUN0               178-28/32    0-12/32   
 10YR TNotes JUN0              138-152/256  -0-8/256  
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.1275       0.1297    -0.002
 Six-month bills               0.1575       0.1598    -0.005
 Two-year note                 99-227/256   0.1828    0.002
 Three-year note               99-166/256   0.2427    0.002
 Five-year note                100-6/256    0.3702    0.011
 Seven-year note               99-138/256   0.5676    0.004
 10-year note                  107-76/256   0.7241    -0.002
 30-year bond                  114-24/256   1.4178    -0.026
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         8.50         0.50    
 spread                                               
 U.S. 3-year dollar swap         3.25         0.00    
 spread                                               
 U.S. 5-year dollar swap         0.50         0.25    
 spread                                               
 U.S. 10-year dollar swap       -5.25         1.00    
 spread                                               
 U.S. 30-year dollar swap      -50.75         1.50    
 spread                                               
 
    
    

 (Reporting by Ross Kerber)
  
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