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Yields slightly lower ahead of Fed meeting

By Ross Kerber July 27 – U.S. Treasury yields ticked lower on Monday as investors set up for a dovish message from the U.S. Federal Reserve amid the COVID-19 pandemic. The benchmark 10-year yield was down 1.2 basis points at 0.5774% in morning trading. No major announcements are expected at the end of the U.S. central bank’s two-day meeting on Wednesday. But analysts foresee policymakers laying the groundwork for weak economic expectations and more dovish action later this year, said Jim Barnes, director of fixed income for Bryn Mawr Trust. “The market is bracing itself for a continued dire outlook from the Fed, which is keeping yields anchored,” Barnes said. Along with the government bonds, other safe haven assets were also in demand Monday as Sino-U.S. tensions rose and coronavirus cases climbed in southern and western U.S. states. More than 146,000 Americans have died of COVID-19 – nearly a quarter of the global total – and there are nearly 4.2 million confirmed cases in the country, or at least 1 in 79 people have been infected. The U.S. Treasury Department is scheduled to auction about $200 billion in bills and notes later on Monday. A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at 43 basis points, about a basis point lower than Friday’s close. Though still above Friday’s low of 33 basis points, the lowest since March 17, the gap was far below its level of 72 basis points reached June 5. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was down less than a basis point at 0.1433% in morning trading. July 27 Monday 9:10AM New York / 1310 GMT Price US T BONDS SEP0 181-13/32 0-10/32 10YR TNotes SEP0 139-176/256 0-28/256 Price Current Net Yield % Change (bps) Three-month bills 0.105 0.1065 -0.002 Six-month bills 0.1325 0.1344 0.000 Two-year note 99-247/256 0.1433 -0.006 Three-year note 99-226/256 0.1646 -0.005 Five-year note 99-240/256 0.2628 -0.011 Seven-year note 100-120/256 0.4312 -0.014 10-year note 100-116/256 0.5774 -0.012 20-year bond 102-28/256 1.0072 -0.017 30-year bond 100-184/256 1.2211 -0.018 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 6.50 0.50 spread U.S. 3-year dollar swap 5.00 0.25 spread U.S. 5-year dollar swap 3.00 0.00 spread U.S. 10-year dollar swap -1.00 0.00 spread U.S. 30-year dollar swap -41.25 0.75 spread (Reporting by Ross Kerber in Boston Editing by Nick Zieminski)

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