February 27, 2018 / 2:49 PM / a year ago

TREASURIES-U.S. yield curve flattens as Powell sticks to gradual playbook

    * Powell maintains Fed's gradual rate-hike path
    * U.S. durable good orders disappoint in January

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, Feb 27 (Reuters) - The margin between U.S.
shorter- and longer-dated yields narrowed on Tuesday as Federal
Reserve Chairman Jerome Powell said the U.S. central bank would
stick to a gradual approach on raising interest rates with
inflation stuck below its 2 percent goal. 
    Some traders had thought Powell might use his first major
appearance before lawmakers as Fed chief to signal a more
hawkish stance in the wake of fiscal stimulus and evidence of
inflation seemingly picking up.
    "The (Federal Open Market Committee) will continue to strike
a balance between avoiding an overheating economy and bringing
... price inflation to 2 percent on a sustained basis," Powell
said in prepared remarks.
    Bond yields initially rose further following the release of
Powell's prepared text on the economy for the House Financial
Services Committee, where he was scheduled to testify at 10 a.m.
(1500 GMT). They retreated as traders concluded Powell's
comments suggested no departure from the Fed's current stance
set by his predecessors, Janet Yelln and Ben Bernanke, analysts
    "It's more interesting to see that the market is
interpreting the comments as somewhat hawkish, and that's more
informative about the trading bias right now than about the
Fed's actually likely policy path,” said Guy LeBas, chief fixed
income strategist at Janney Montgomery Scott in Philadelphia.
    Powell will complete his semiannual testimony before
Congress before the Senate Banking Committee on Thursday.
    At 9:27 a.m. (1426 GMT), the benchmark 10-year Treasury
yield was 2.851 percent, down 0.8 basis point from
late on Monday, while the two-year yield was 2.222
percent, 0.8 basis point lower on the day.
    The spread between five-year and 30-year Treasury yields
contracted by 1.5 basis points at 52.6 basis points
. It remained above the decade low of 40.0 basis
points reached on Feb. 1, Tradeweb data showed.
    The yield curve also flattened on disappointing data on
domestic durable goods orders, which fell 3.7 percent in
January, more than expected what analysts had forecast.
February 27 Tuesday 9:38AM New York / 1438 GMT
 US T BONDS MAR8               144-15/32    8/32      
 10YR TNotes MAR8              120-216/256  1/32      
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.645        1.6749    -0.002
 Six-month bills               1.8325       1.8753    0.000
 Two-year note                 100-14/256   2.2219    -0.008
 Three-year note               99-166/256   2.3734    -0.003
 Five-year note                100-20/256   2.6082    0.003
 Seven-year note               99-212/256   2.7772    0.000
 10-year note                  99-32/256    2.8514    -0.008
 30-year bond                  97-92/256    3.1365    -0.018
         YIELD CURVE           Last (bps)   Net       
 10-year vs 2-year yield       62.80        -0.85     
 30-year vs 5-year yield       52.80        -1.35     
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        29.25         2.25    
 U.S. 3-year dollar swap        25.75         1.75    
 U.S. 5-year dollar swap        12.00         1.00    
 U.S. 10-year dollar swap        1.00         1.00    
 U.S. 30-year dollar swap      -19.00         1.25    

 (Reporting by Richard Leong; Editing by Jonathan Oatis)
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