June 19, 2019 / 7:29 PM / 2 months ago

TREASURIES-U.S. yields slide after Fed signals rate cuts this year

    * Fed holds rates steady, but signals cuts this year
    * U.S. yields fall across the board
    * U.S. 2-year yields lowest since December 2017
    * Fed doesn't signal July rate cut, could delay to Sept -
analyst

 (Adds analyst comment, details, updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, June 19 (Reuters) - U.S. Treasury yields retreated
on Wednesday after the Federal Reserve held interest rates
steady, as expected, but flagged possible rate cuts of as much
as half a percentage point later this year as inflation remained
below its target.
    U.S. yields hit session lows after the Fed decision, with
those on two-year notes hitting their lowest since early
December 2017, after trading higher all day.
    The U.S. central bank said it "will act as appropriate to
sustain" the economic expansion as it approaches the 10-year
mark and dropped a promise to be "patient" in adjusting rates.
Nearly half its policymakers now show a willingness to lower
borrowing costs over the next six months.
    Chris Cordaro, chief investment officer at RegentAtlantic in
New York, said the Fed was justified in not cutting interest
rates on Wednesday.
    "We're still running at really low unemployment rates,"
Cordaro said. "The economy is starting to slow but it's not
coming anywhere close to potentially dipping into a recession.
It would be premature today to cut rates and even maybe in
July."
    Seven of 17 policymakers said they expected it would be
appropriate to cut rates by half a percentage point by the end
of 2019, and an eighth saw a rate cut of a quarter point as
appropriate.
    Fed officials, though, still projected the targeted
overnight lending rate to remain in a range of 2.25% to 2.50%
for the rest of this year.
    "The modest downward revisions to the interest rate
projections are likely to come as a disappointment to markets,
which were pricing in a much bigger monetary loosening," said
Paul Ashworth, chief U.S. economist at Capital Economics.
    The Fed statement, he added, fell well short of signaling a
rate cut is coming in July, and could very well delay the move
until September.
    In a question-and-answer forum, Fed Chairman Jerome Powell
said he intends to fully serve his four-year term, after being
asked about the possibility of being demoted by U.S. President
Donald Trump.
    In afternoon trading, U.S. 10-year note yields fell to
2.031% from 2.058% late on Tuesday.
    Yields on U.S. 30-year bonds dropped to 2.54%,
from 2.552% on Tuesday.
    At the short end of the curve, U.S. 2-year yields slid to 
1.753%, the lowest in about 1-1/2 years, from Tuesday's 1.862%
. They were last at 1.755%.
    
      Wednesday, June 19, at 1510 EDT (1910 GMT):
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2.1325       2.1798    -0.046
 Six-month bills               2.07         2.1268    -0.070
 Two-year note                 100-173/256  1.7698    -0.092
 Three-year note               100-26/256   1.7149    -0.084
 Five-year note                101-16/256   1.7745    -0.056
 Seven-year note               101-120/256  1.8982    -0.035
 10-year note                  103-12/256   2.0336    -0.024
 30-year bond                  106-232/256  2.5437    -0.008
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         2.25        -0.50    
 spread                                               
 U.S. 3-year dollar swap         1.75        -0.25    
 spread                                               
 U.S. 5-year dollar swap        -1.50         0.00    
 spread                                               
 U.S. 10-year dollar swap       -6.75        -0.50    
 spread                                               
 U.S. 30-year dollar swap      -32.75        -0.50    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by
David Randall; Editing by Nick Zieminski and James Dalgleish)
  
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