July 22, 2019 / 1:27 PM / 3 months ago

TREASURIES-Yields fall as dovish central bank policy supports debt

    * ECB expected to give dovish signal on Thursday
    * Fed expected to cut rates by 25 bps this month
    * Treasury to sell $113 billion notes this week

    By Karen Brettell
    NEW YORK, July 22 (Reuters) - Long-dated U.S. Treasury
yields fell on Monday and the yield curve flattened as dovish
global central bank policy supported demand for government debt,
with no major new events to shift market direction.
    The European Central Bank (ECB) is expected to signal easier
monetary policy when it meets on Thursday.             
    The Federal Reserve is also seen as certain to cut its
benchmark rate at its July 30-31 meeting.
    "The ECB as well as the Fed are both about to move into a
more accommodative monetary policy stance in the very near
term," said Ian Lyngen, head of U.S. rates strategy at BMO
Capital Markets in New York.
    The Fed has signaled that a rate cut is likely as the
prolonged U.S.-China trade war dents business confidence, global
manufacturing slows down and inflation remains below the Fed's
target of 2% a year.
    Expectations that the U.S. central bank could make a 50
basis point cut rose last week after New York Fed President John
Williams made the case for fast action to stave off economic
weakness, but fell back after the New York Fed said the comments
were not about upcoming policy action.                          
    The odds of a deeper cut also fell on Friday after the Wall
Street Journal wrote that the Fed is likely to cut rates by 25
basis points and that policymakers are not prepared for a 50
basis point rate decrease.             
    St. Louis Federal Reserve President James Bullard said on
Friday he would like a 25 basis point cut as it would give the
Fed options for later this year.             
    Benchmark 10-year notes             were last up 6/32 in
price to yield 2.03%, down from 2.05% late on Friday.
    The yield curve between two-year and 10-year notes
               flattened to 22 basis points, from 24 basis
points on Friday. 
    The Treasury Department this week will sell $113 billion in
short and intermediate-dated notes, including $40 billion in
two-year notes on Tuesday, $41 billion in five-year notes on
Wednesday and $32 billion in seven-year notes on Thursday. 

 (Reporting by Karen Brettell; Editing by Will Dunham)
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