March 2, 2020 / 5:41 PM / a month ago

TREASURIES-U.S. long-dated yields tumble to record lows on Fed cut view

    * U.S. 2-year yields fall to near four-year low
    * Fed, BoJ, BoE signal possible action to ease coronavirus
impact
    * Markets fully price in Fed rate cut this month
    * U.S. ISM data slows in February

 (New throughout, updates prices, yields, market activity and
comments, adds U.S. data)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, March 2 (Reuters) - U.S. Treasury prices rose
sharply on Monday, pushing long-dated yields to record lows, as
bond investors braced for a slew of stimulus measures including
interest rate cuts from global central banks to ease the
economic impact of the coronavirus.
    U.S. two-year yields fell to the lowest in nearly four
years, with U.S. yield curves steepening as investors priced in
easing from the Federal Reserve.
    The Fed, Bank of Japan, and Bank of England all indicated
willingness to support economies hit by the coronavirus
outbreak.
    Fed Chairman Jerome Powell late on Friday said the central
bank will "act as appropriate" to support the economy, which he
said remains in good shape overall.
    Investors now expect the Fed to cut rates this month. Fed
funds futures now imply a 50 basis point cut at the meeting,
according to the CME FedWatch.
    "The last time we saw that language from the Fed was last
year before the first rate cut," said Michael Chang, interest
rates strategist at Societe Generale in New York.
    "The market priced that rate cut very quickly. So the
question right now would be the magnitude of the rate cut: 
whether it's 25 basis points, or 50 basis points," he added. 
    BoJ Governor Haruhiko Kuroda also said the Japanese central
bank  would take steps to stabilize markets if needed. The Bank
of England said it was assessing "potential impacts" of the
outbreak.
    In midday trading, U.S. 10-year yields fell to
1.086%, from 1.126% late on Friday. During the session, 10-year
yields fell to a record low of 1.03%.
    Yields on U.S. 30-year bonds were at 1.644%,
down from 1.668% on Friday, after touching an all-time trough of
1.583%.
    On the short end of the curve, U.S. two-year yields fell to
0.815% from Friday's 0.878%, after hitting a nearly
four-year low of 0.71%.
    The yield curve steepened, with the spread between the
two-year and 10-year widening as much as 34.5 basis points
, the widest since early January. The gap was last
27 basis points.
    Data showed a slight slowing in U.S. manufacturing activity
for February, with the Institute for Supply Management (ISM)
index reading down to 50.1, from January's 50.9.
    Treasuries firmed modestly after the data, but investors
were not overly focused on economic reports.
    "Suffice it to say, the domestic data is by no means driving
the macro narrative at this stage," said Ian Lyngen, head of
U.S. rates strategy, at BMO Capital Markets in New York. 
    
      March 2 Monday 12:25PM New York / 1725 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.175        1.1979    -0.087
 Six-month bills               1.025        1.0474    -0.090
 Two-year note                 100-153/256  0.8218    -0.056
 Three-year note               101-156/256  0.8222    -0.049
 Five-year note                101-70/256   0.8638    -0.048
 Seven-year note               100-224/256  0.9951    -0.046
 10-year note                  103-216/256  1.0914    -0.035
 30-year bond                  108-88/256   1.646     -0.022
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         5.50        -2.00    
 spread                                               
 U.S. 3-year dollar swap         4.75        -0.25    
 spread                                               
 U.S. 5-year dollar swap         5.50         1.75    
 spread                                               
 U.S. 10-year dollar swap       -2.25         2.00    
 spread                                               
 U.S. 30-year dollar swap      -38.25        -0.25    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Steve
Orlofsky and David Gregorio)
  
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