July 30, 2019 / 6:59 PM / 23 days ago

TREASURIES-U.S. bond yields edge up on solid data as Fed meets

    * Traders widely expect Fed to cut U.S. rates on Wednesday
    * U.S. consumer confidence rebounds to hit 8-month peak in
July

 (Updates market action, adds quotes)
    By Richard Leong
    NEW YORK, July 30 (Reuters) - U.S. Treasury yields edged up
on Tuesday on encouraging data as Federal Reserve policy-makers
began meeting on whether to lower key lending rates for the
first time in a decade to prolong the longest-ever U.S. economic
expansion.
    Traders awaited signals on whether the U.S. central bank
after a two-day meeting will deliver an insurance rate-cut to
combat risks from ongoing trade tensions or is prepared to lower
borrowing costs a number of times to avert a recession.
    "The market is treading water until we get clarification
from the Fed on what it's going to do," said Sean Simko, head of
global fixed income management at SEI Investments Co. 
    U.S. interest rates futures suggested traders are fully
positioned for a rate cut on Wednesday with an expected 78%
chance of a quarter-point decrease and a 22% probability of a
half-point reduction, according to CME Group's FedWatch program.

    Federal funds contracts implied traders expect at least one
more quarter-point cut by year-end if the Fed lowers rates
Wednesday.
    "They don't want to disappoint the market," said Nick
Maroutsos, co-head of global bonds at Janus Henderson. He added
the Fed needs to signal another rate cut is coming, or risk
roiling stock and bond prices.
    "They are completely at the mercy of the markets," he said. 
    The Fed will release its rate decision at 2 p.m. (1800 GMT)
on Wednesday, followed by a press conference with Fed Chairman
Jerome Powell half an hour later.
    In late U.S. trading, the yield on benchmark 10-year
government notes was up 1 basis point at 2.063%,
bouncing within a 3.5 basis-point trading range.
    The benchmark 10-year yield has risen over 6 basis points
this month after hitting 1.939% on July 3, which was its lowest
level since November 2016.
    On the data front, the Commerce Department said U.S.
consumer spending rose 0.3% in June, matching analyst forecasts
and allaying some worries about a sharp deceleration in economic
growth.
    While core consumer prices grew last month, the
year-over-year increase as measured by the core rate of personal
consumer expenditure remained subdued at 1.6%, below the Fed's
2% goal.
    The Conference Board said its index on U.S. consumer
confidence rose to 135.7 in July, an eight-month high. It
recovered from last month's drop that pushed the gauge to a
21-month low due to the trade conflict between China and the
United States.
   Tuesday, July 30, at 1443 EDT (1843 GMT):
                               Price                  
 US T BONDS SEP9               154-21/32    -4/32     
 10YR TNotes SEP9              127-84/256   -4/32     
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2.05         2.0951    -0.013
 Six-month bills               2.0325       2.0822    -0.006
 Two-year note                 99-204/256   1.8539    0.004
 Three-year note               99-204/256   1.8208    0.011
 Five-year note                99-138/256   1.8469    0.013
 Seven-year note               99-140/256   1.9445    0.015
 10-year note                  102-192/256  2.0632    0.008
 30-year bond                  106          2.5848    0.002
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       20.70        0.50      
 30-year vs 5-year yield       73.70        -0.45     
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         2.75         0.50    
 spread                                               
 U.S. 3-year dollar swap        -0.50        -0.25    
 spread                                               
 U.S. 5-year dollar swap        -3.50        -0.25    
 spread                                               
 U.S. 10-year dollar swap       -8.75        -0.50    
 spread                                               
 U.S. 30-year dollar swap      -37.50        -0.25    
 spread                                               
 

    
 (Reporting by Richard Leong; Editing by  Bernadette Baum and
Tom Brown)
  
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