March 3, 2020 / 6:00 PM / a month ago

TREASURIES-U.S. 10-year yields tumble to record low after Fed's emergency cut

    * Fed cuts rates by 50 basis points
    * U.S. yield curve steepens
    * Rates futures raise bets for another cut in April

 (Recasts, adds comment, updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, March 3 (Reuters) - U.S. benchmark 10-year
Treasury yields fell to a record low on Tuesday after the
Federal Reserve slashed interest rates by 50 basis points in an
emergency move to ease the economic fallout from the
fast-spreading coronavirus.
    U.S. yields were down across the board after the Fed action.
    In a statement, the central bank said it was cutting rates
to a target range of 1.00% to 1.25%.
    "The fundamentals of the U.S. economy remain strong.
However, the coronavirus poses evolving risks to economic
activity," it said in a statement.
    The coronavirus, which emerged in the central Chinese city
of Wuhan late last year, has spread around the world, with more
new cases outside China than inside. It has hit sports events,
trade exhibitions, concerts, book fairs, prayer meetings and
other large gatherings worldwide.
    Investors expected the Fed to cut interest rates after the
Fed issued a statement late on Friday. But they did not expect
it to move so quickly, ahead of a scheduled monetary policy
meeting later this monnth.
    "The bond market response suggests more cuts are coming from
the Fed," said Tom Simons, money market economist at Jefferies
in New York.
    "Since the Fed started targeting the fed funds rate, every
time the Fed has an inter-meeting action, it has had the same
action at the upcoming scheduled meeting," he added.
    The rates future market has raised bets for another cut at
the April policy meeting.
    In midday trading, U.S. 10-year yields fell to
1.047%, from 1.088% late on Monday. Earlier in the session,
10-year yields hit a record low of 1.022%.
    Yields on U.S. 30-year bonds were little changed
 at 1.647%, from 1.645% on Monday.
    On the short end of the curve, U.S. two-year yields fell to
0.758% from Monday's 0.878%.
    The yield curve steepened after the Fed announcement, with
the spread between the two-year and 10-year widening to 29 basis
points from 25.8 basis points on Monday.     
    "The biggest takeaway from here is the steepening of the
curve, the 2s/10s jumped almost 7 basis points," said Justin
Lederer, Treasury analyst at Cantor Fitzgerald in New York.
    "It's a big, big steepening here," he said.
    John Herrmann, rates strategist at MUFG Securities in New
York, said his firm's models continue to forecast another 25-
basis-point cut by the policy meeting next month, and possibly
another cut after that meeting.
    
      March 3 Tuesday 12:36 PM New York/1736 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.965        0.9835    -0.186
 Six-month bills               0.8875       0.9039    -0.123
 Two-year note                 100-190/256  0.7484    -0.078
 Three-year note               101-206/256  0.7553    -0.073
 Five-year note                101-152/256  0.7985    -0.066
 Seven-year note               101-76/256   0.9329    -0.063
 10-year note                  104-88/256   1.0393    -0.049
 30-year bond                  108-128/256  1.6397    -0.005
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         7.25         0.75    
 spread                                               
 U.S. 3-year dollar swap         5.75         0.00    
 spread                                               
 U.S. 5-year dollar swap         5.75        -0.50    
 spread                                               
 U.S. 10-year dollar swap       -2.25        -0.50    
 spread                                               
 U.S. 30-year dollar swap      -39.25        -1.25    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by
Karen Brettell; editing by Jonathan Oatis and Dan Grebler)
  
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