July 22, 2019 / 6:46 PM / 7 months ago

TREASURIES-Yields fall as dovish central bank policy supports debt

 (Adds debt ceiling talks, updates prices)
    * 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) - 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 set 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
2% annual target.
    Expectations that the U.S. central bank could make a 50
basis point cut rose last week after New York Fed President John
Williams argued for fast action to stave off economic weakness,
but receded 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 to give the Fed
options for later this year.             
    Benchmark 10-year notes             gained 3/32 in price to
yield 2.04%, down from 2.05% late on Friday.
    The yield curve between two-year and 10-year notes
               flattened to 23 basis points, from 24 basis
points on Friday.
    U.S. congressional and White House negotiators are close to
a deal to extend the Treasury Department's borrowing authority
until July 31, 2021, a source said on Monday.             
    House Speaker Nancy Pelosi and Treasury Secretary Steven
Mnuchin have been holding talks to reach a deal before Congress
begins a five-week summer recess.
    Without such a deal, Treasury could bump up against its
borrowing limit before Sept. 9, when Congress is set to return.
    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 Andrea Ricci)
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