October 25, 2019 / 3:00 PM / a month ago

TREASURIES-U.S. yields modestly higher as investors look to next week's FOMC

    By Gertrude Chavez-Dreyfuss
    NEW YORK, Oct 25 (Reuters) - U.S. Treasury yields were flat
to slightly higher on Friday, in generally rangebound trading,
with investors not really looking to push yields in either
direction ahead of next week's Federal Reserve monetary policy
meeting.
    The U.S. economic calendar is thin on Friday so market
participants will be focused not only the Fed, but also
U.S-China trade negotiations related to increasing purchases of
U.S. agricultural products, as well as news on Britain's exit
from the European Union.
    "Realized volatility in the last two weeks has been very
compressed and seems to have bled out all the bearish momentum
leading into the month of October," said Guy LeBas, chief fixed
income strategist, at Janney Montgomery Scott in Philadelphia.
    "I think we would need significant catalysts such as next
week's FOMC (Federal Open Market Committee) meeting to break out
of this range," he added.
    The Fed is widely expected cut interest rates by 25 basis
points next week.
    In morning trading, U.S. 10-year note yields
edged up to 1.774% from 1.766% late on Thursday.
    Yields on 30-year bonds were little changed at
2.257%, from 2.259% on Thursday.
    On the short-end of the curve, U.S. two-year yields rose to
1.597%, from Thursday's 1.582%.
    While next week's expected rate cut has been priced in,
Fed's next moves are still up in the air. Some analysts expect
the Fed to do a "hawkish cut", which is for insurance purposes
and not because the U.S. economy desperately needs it.
    Janney's LeBas thinks the Fed is going to do a "neutral
cut".
    "The Fed statement is going to have much indication of
forward looking actions or beyond. Right now, there's only a 1
in 5 chance of a December cut, assuming of course an October
cut," said LeBas.
    He believes the ratio should be more like 50-50, which
should have the potential to spur a 10 basis-point rally
throughout the curve.
    On Friday, top U.S. and Chinese trade officials will discuss
plans for China to buy more U.S. farm products, but in return,
Beijing will request cancellation of some planned and existing
U.S. tariffs on Chinese imports.
    
      October 25 Friday 10:41AM New York / 1441 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.635        1.6688    -0.005
 Six-month bills               1.6175       1.6577    0.000
 Two-year note                 99-208/256   1.5956    0.014
 Three-year note               99-96/256    1.5916    0.009
 Five-year note                99-142/256   1.593     0.008
 Seven-year note               99-168/256   1.6772    0.001
 10-year note                  98-192/256   1.7644    -0.002
 30-year bond                  99-236/256   2.2535    -0.006
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         2.50        -0.75    
 spread                                               
 U.S. 3-year dollar swap        -1.50        -0.50    
 spread                                               
 U.S. 5-year dollar swap        -3.00        -1.00    
 spread                                               
 U.S. 10-year dollar swap       -8.75        -0.75    
 spread                                               
 U.S. 30-year dollar swap      -38.75        -0.75    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss
Editing by Alistair Bell)
  
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