November 16, 2018 / 8:12 PM / 9 months ago

REFILE-TREASURIES-U.S. yields fall as Fed comments spark talk of rate hike end

 (In 6th paragraph, corrects name to Fox Business Network, not
Fox Business News)
    * Fed's Clarida says interest rates nearing neutral level
    * Fed's Kaplan warns about slowing global growth-Fox
    * U.S. 30-year, 10-year, 2-year yields fall to 2-week lows

    By Gertrude Chavez-Dreyfuss
    NEW YORK, Nov 16 (Reuters) - U.S. Treasury yields retreated
on Friday after a top Federal Reserve official said U.S.
interest rates are nearing the central bank's estimates of a
neutral level, suggesting that the current tightening cycle may
soon end.
    U.S. benchmark 10-year, 30-year, and two-year yields dropped
to two-week lows, while yields on intermediate maturities - 
five-year and seven-year notes - tumbled to their lowest in two
    In a CNBC interview at the U.S. central bank's Washington
headquarters on Friday, Fed Vice Chair Richard Clarida said the 
bank needs to be particularly data-dependent as rates are near
the 2.5 percent to 3.5 percent "neutral" range that neither
stimulates nor brakes economic growth.
    This was Clarida's first public comments since his
confirmation by the Senate in August.
    "The big driver right now is Fed speech," said Guy LeBas,
chief fixed income strategist at Janney Montgomery Scott in
Philadelphia. "Clarida indicated a modestly dovish bent on Fed
policy, and not a particularly aggressive stance." 
    In an interview with Fox Business Network on Friday, Dallas
Fed President Robert Kaplan said the U.S. economy is stronger
than he had thought but faces headwinds next year from weaker
global economic conditions, as well as fading impact of
President Donald Trump's tax reform.
    Chairman Jerome Powell on Wednesday also cited slowing
global growth as an emerging concern among Fed officials as they
debate how much further and how quickly to raise their
short-term policy rate.
    "The one thing that is worth noting is that all three -
Powell, Clarida, and Kaplan - referenced negative feedback from
foreign economic conditions," Janney's LeBas said. 
    "They also used fairly similar language that suggests the
Federal Reserve is concerned about policy implications from
global growth," he added.
    In afternoon trading, U.S. 10-year note yields fell as low
as 3.066 percent, a two-week low, from 3.118 percent
late Thursday. Yields were last at 3.077 percent.
    U.S. 30-year bond yields were down at 3.331 percent
, from 3.366 percent on Thursday. Earlier in the
session, 30-year yields dropped to two-week troughs of 3.323
    On the short end of the curve, U.S. two-year yields slid to
a two-week trough of 2.804 percent, compared with Thursday's
2.862 percent. Two-year yields were last at 2.812
    Chris Ahrens, chief market strategist at First Empire
Securities, said slower global growth will not delay the Fed's
next tightening, expected next month.
    "But global growth could decelerate to the point where it
reverberates into the domestic economy." 
    Ahrens added that there is a potential downside break of an
upside channel in 10-year yields, with a close below 3.05
percent exposing the 2.98 percent target. 
      November 16 Friday 2:58PM New York / 1958 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             2.31         2.3552    -0.011
 Six-month bills               2.44         2.5041    -0.011
 Two-year note                 100-30/256   2.8122    -0.050
 Three-year note               100-12/256   2.8584    -0.055
 Five-year note                99-236/256   2.8918    -0.053
 Seven-year note               100-24/256   2.9848    -0.045
 10-year note                  100-112/256  3.0738    -0.044
 30-year bond                  100-224/256  3.3286    -0.037
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        19.50         0.00    
 U.S. 3-year dollar swap        17.00        -0.25    
 U.S. 5-year dollar swap        14.25         0.00    
 U.S. 10-year dollar swap        6.00        -0.25    
 U.S. 30-year dollar swap      -11.00        -0.50    
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Chizu
Nomiyama, Richard Chang and Steve Orlofsky)
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