May 13, 2020 / 2:36 PM / 12 days ago

TREASURIES-Sober diagnosis from Fed's Powell leaves yields steady

    By Ross Kerber
    BOSTON, May 13 (Reuters) - U.S. Treasury yields were steady
on Wednesday after Federal Reserve Chair Jerome Powell gave a
solemn assessment of the U.S. economy and renewed his skepticism
of negative interest rates.    
    The benchmark 10-year yield was down 3.1 basis
points in morning trading at 0.6606%.
    That was within a basis point of where the figure stood at 9
a.m. when Powell began remarks in which he said that the country
could face an "extended period" of weak growth and stagnant
incomes because of the COVID-19 pandemic.
    In a talk that was webcast by the Peterson Institute for
International Economics, Powell pledged to use more Fed power as
needed, issued a call for more fiscal spending, and reiterated
the Fed's skepticism of negative interest rates.
    Rates below zero, once unimaginable, have now become a
possibility for investors. Fed funds futures
[0#FF:] were pricing in rates of about a basis point below zero
by June, as the pandemic hammers the U.S. economy toward its
steepest downturn since the Great Depression.[0#FF:]
    Before Powell spoke the same measure priced in rates at half
a basis point below zero by March 2021.
    The muted bond-market reaction underscored how Powell's
message on Wednesday was unchanged from before, that the Fed can
buy policymakers time but that more fiscal stimulus is likely
necessary amid the public-health crisis, said Andrew Richman,
director of fixed income strategies for Truist/SunTrust Advisory
Services.
    "The idea is they can help on the lending side, not the
spending side," Richman said.
    Traders were also looking ahead to an early afternoon
auction results from a sale of 30-year notes, after strong
demand for a 10-year issuance on Tuesday.    
    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 50 basis points, within a basis point of
Tuesday's close. 
    The two-year U.S. Treasury yield, which typically
moves in step with interest rate expectations, was down 1.2
basis points at 0.1609% in morning trading.
    
      May 13 Wednesday 10:02AM New York / 1402 GMT
                               Price                  
 US T BONDS JUN0               180-11/32    0-17/32   
 10YR TNotes JUN0              139-32/256   0-44/256  
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.125        0.1271    -0.007
 Six-month bills               0.1525       0.1547    -0.005
 Two-year note                 99-238/256   0.1609    -0.012
 Three-year note               99-194/256   0.206     -0.013
 Five-year note                100-70/256   0.3194    -0.016
 Seven-year note               99-244/256   0.5069    -0.020
 10-year note                  99-168/256   0.6606    -0.031
 30-year bond                  115-220/256  1.3509    -0.031
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         9.75         0.75    
 spread                                               
 U.S. 3-year dollar swap         5.25         1.25    
 spread                                               
 U.S. 5-year dollar swap         2.00         0.50    
 spread                                               
 U.S. 10-year dollar swap       -5.00        -0.50    
 spread                                               
 U.S. 30-year dollar swap      -50.00         0.00    
 spread                                               
 
    
    





 (Reporting by Ross Kerber; Editing by Andrea Ricci)
  
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