March 17, 2020 / 8:46 PM / 14 days ago

TREASURIES-Treasury yields jump as Fed aids commercial paper market

 (Updates yields)
    By Karen Pierog
    March 17 - The benchmark U.S. 10-year Treasury note yield
climbed back over the 1% level on Tuesday as a modicum of
renewed confidence shored up Wall Street and reduced demand for
safe government debt after the Federal Reserve announced plans
to rescue the stressed commercial paper market.
    The yield on the 10-year note rose to 1.067%,
from 0.728% at Monday's close, its highest since March 3, as
risk appetite improved after the Fed said it will relaunch
financial crisis-era purchases of short-term corporate debt to
thaw credit markets strained by the coronavirus pandemic.

    "Fiscal stimulus is coming and the Fed is now supporting the
corporate market with CP. And we don't think either the
Treasury, White House or Fed is done yet. ... We will see if the
equity markets starts looking ahead," Andrew Brenner, head of
international fixed income at National Alliance Securities,
wrote in an email to clients. 
     Investors are hoping that the Fed's moves will ease a
credit crunch and lubricate financial markets, and that helped
boost stocks a day after they recorded their biggest tumble
since the crash of 1987.
    On Sunday, the central bank cut interest rates to near zero
and launched a $700 billion quantitative easing program to buy
Treasuries and mortgage backed securities in an effort to
stimulate the U.S. economy and ensure liquidity in financial
    "There's some confidence here that the end of the world will
not happen, at least not this year," said Stan Shipley, fixed
income strategist at Evercore ISI in New York. "It seems to us
that the monetary authorities moved very quickly to do what they
    Yields on 30-year bonds were last at 1.679%, up
from Monday's close of 1.324%, and two-year Treasury note yields
 were trading at 0.494%, up from 0.36% late on Monday.
    Gennadiy Goldberg, senior U.S. rates strategist at TD
Securities in New York, said liquidity problems have not yet
been resolved even though the Fed has stepped in to buy
    "You're starting to see more orderly price action, but it's
extremely touch and go," he said. 
    Both the three-month/10-year Treasury yield curve and the
2s/10s steepened sharply, the latter spread reaching its widest
since May 2018 at around 54 basis points. 
    Meanwhile, the New York Federal Reserve offered an
additional up to $500 billion in overnight loans on Tuesday
afternoon, but only $10.1 billion in repurchase agreements or
repo bids were submitted and accepted.
    It also said it will make up to $1 trillion a day available
for loans in the repo market for the remainder of this week.

    The moves marked further efforts by the central bank to
provide more liquidity to money markets during a period of high
volatility related to the coronavirus.
    In an earlier overnight repo operation on Tuesday, the NY
Fed accepted $142.65 billion in bids submitted out of a possible
$500 billion. 
     March 17 Tuesday 3:25PM New York / 2025 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.1975       0.2009    -0.060
 Six-month bills               0.265        0.269     -0.018
 Two-year note                 101-57/256   0.4945    0.134
 Three-year note               99-170/256   0.6135    0.176
 Five-year note                101-234/256  0.7306    0.239
 Seven-year note               101-2/256    0.9747    0.303
 10-year note                  104-16/256   1.067     0.339
 30-year bond                  107-136/256  1.6787    0.355
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap         5.75        -2.00    
 U.S. 3-year dollar swap         0.75        -4.00    
 U.S. 5-year dollar swap         5.25        -5.25    
 U.S. 10-year dollar swap       -8.75       -10.25    
 U.S. 30-year dollar swap      -67.50       -11.75    
 (Reporting by Kate Duguid in New York and Karen Pierog in
Chicago; ; Editing by Alden Bentley
Editing by Nick Zieminski and Will Dunham)
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