March 2, 2020 / 3:03 PM / a month ago

TREASURIES-U.S. long-dated yields drop to new record lows on Fed cut outlook

    By Gertrude Chavez-Dreyfuss
    NEW YORK, March 2 (Reuters) - U.S. Treasury prices rose
sharply on Monday, pushing long-dated yields to fresh record
lows, as bond investors braced for a slew of stimulus measures
that include interest rate cuts from global central banks to
ease the economic impact of the coronavirus.
    U.S. two-year yields also dropped, falling to a near
four-year trough, with U.S. yield curves steepening as investors
priced in easing from the Federal Reserve.
    The Fed, Bank of Japan, and Bank of England all indicated
willingness to take action to support their economies in the
midst of the fallout emanating from the coronavirus.
    Fed Chairman Jerome Powell late on Friday said the central
bank will "act as appropriate" to support the economy in the
face of risks posed by the coronavirus epidemic, though he said
the economy remains in good shape overall.
    Investors took his comments as a hint that the Fed will
deliver a cut when it meets later this month, and as an
encouragement to central banks around the world to follow suit.
Fed funds future now imply a 50 basis point cut at the meeting,
according to the CME FedWatch.
    "The last time we saw that language from the Fed was last
year before the first rate cut," said Michael Chang, interest
rates strategist at Societe Generale in New York.
    "The market priced that rate cut very quickly. So the
question right now would be the magnitude of the rate cut: 
whether it's 25 basis points, or 50 basis points," he added. 
    BoJ Governor Haruhiko Kuroda also said the Japanese central
bank  would take steps to stabilize markets if needed, while the
Bank of England said it, too, was monitoring developments and
assessing the "potential impacts" on the global and UK economies
and financial systems.
    "The coordination among central banks in terms of stimulus
measures is very positive for bonds," Chang said.
    In morning trading, U.S. 10-year yields fell to
1.080%, from 1.126% late on Friday. Earlier in the session,
10-year yields fell to a new record low of 1.03%.
    Yields on U.S. 30-year bonds were at 1.643%,
down from 1.668% on Friday, after earlier sliding to an all-time
trough of 1.583%.
    On the short end of the curve, U.S. two-year yields fell to
0.794% from Friday's 0.878%, after hitting a nearly
four-year low of 0.71%.
    The yield curve also steepened on Monday, with the spread
between the two-year and 10-year widening to 34.5 basis points
, the widest gap since early January.
      March 2 Monday 9:49 AM New York/1449 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.16         1.1826    -0.102
 Six-month bills               0.9775       0.9986    -0.138
 Two-year note                 100-167/256  0.7943    -0.084
 Three-year note               101-178/256  0.793     -0.078
 Five-year note                101-96/256   0.8431    -0.069
 Seven-year note               100-248/256  0.9813    -0.060
 10-year note                  103-240/256  1.0816    -0.044
 30-year bond                  108-104/256  1.6435    -0.025
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap         5.50        -2.00    
 U.S. 3-year dollar swap         4.50        -0.50    
 U.S. 5-year dollar swap         5.00         1.25    
 U.S. 10-year dollar swap       -2.50         1.75    
 U.S. 30-year dollar swap      -39.00        -1.00    
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Steve
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