May 13, 2020 / 7:03 PM / 12 days ago

TREASURIES-Sober Powell comments, soft auction demand leaves yields steady

 (Updates with market activity, 30-year auction results, analyst
comment)
    By Ross Kerber
    BOSTON, May 13 (Reuters) - U.S. Treasury yields were steady
on Wednesday after Federal Reserve Chair Jerome Powell gave a
solemn assessment of the U.S. economy and investors showed soft
demand for a 30-year bond auction.    
    The benchmark 10-year yield was down 4.1 basis
points at 0.6509% in afternoon trading.
    That was close to where it stood in the morning when Powell
said that the country could face an "extended period" of weak
growth and stagnant incomes because of the COVID-19 pandemic.
    In remarks webcast by the Peterson Institute for
International Economics, Powell also pledged to use more Fed
power as needed, issued a call for more fiscal spending, and
reiterated the Fed's skepticism of negative interest
rates.
    Rates below zero, once unimaginable, have now become a
possibility for investors. Fed funds futures
[0#FF:] were pricing in rates of about a basis point below zero
by April, as the pandemic hammers the U.S. economy toward its
steepest downturn since the Great Depression.
    Before Powell spoke the same measure priced in rates at half
a basis point below zero by March 2021.
    The muted bond-market reaction underscored how Powell's
message on Wednesday was unchanged from before, that the Fed can
buy policymakers time but that more fiscal stimulus is likely
necessary amid the public-health crisis, said Andrew Richman,
director of fixed income strategies for Truist/SunTrust Advisory
Services.
    "The idea is they can help on the lending side, not the
spending side," Richman said.
    Separately, investors showed only moderate demand for a $22
billion afternoon auction of 30-year bonds, after strong demand
for a 10-year issuance on Tuesday. Of the
competitive bids the U.S. Treasury accepted, 21% came from
primary dealers.  
    That was a higher-than-average share that suggested reduced
investor interest, said Tom di Galoma, managing director of
Seaport Global Holdings. Risk-off equity trading on Wednesday
"kind of took away the attractiveness of the auction," he said.
    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 49 basis points, down a basis point from 
Tuesday's close. 
    The two-year U.S. Treasury yield, which typically
moves in step with interest rate expectations, was down 1.2
basis points at 0.1609% in afternoon trading.
    
    May 13 Wednesday 2:36PM New York / 1836 GMT
                               Price                  
 US T BONDS JUN0               180-19/32    0-25/32   
 10YR TNotes JUN0              139-56/256   0-68/256  
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.12         0.122     -0.012
 Six-month bills               0.1525       0.1547    -0.005
 Two-year note                 99-238/256   0.1609    -0.012
 Three-year note               99-196/256   0.2034    -0.016
 Five-year note                100-74/256   0.3162    -0.019
 Seven-year note               100-4/256    0.4977    -0.029
 10-year note                  99-192/256   0.6509    -0.041
 30-year bond                  116-16/256   1.3433    -0.039
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        10.00         1.00    
 spread                                               
 U.S. 3-year dollar swap         5.25         1.25    
 spread                                               
 U.S. 5-year dollar swap         2.25         0.75    
 spread                                               
 U.S. 10-year dollar swap       -4.25         0.25    
 spread                                               
 U.S. 30-year dollar swap      -49.00         1.00    
 spread                                               
 

    





 (Reporting by Ross Kerber; Editing by Andrea Ricci)
  
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