March 11, 2020 / 7:51 PM / a month ago

TREASURIES-U.S. Treasury yields climb as market awaits stimulus guidance

 (Recasts, updates yields, adds analyst comment, 10-year note
auction)
    CHICAGO, March 11 - U.S. Treasury yields rose in choppy
trading on Wednesday despite losses in stocks that deepened
after the World Health Organization classified the coronavirus
outbreak as a pandemic. 
    The 10-year note yield was last at 0.814%, up
from 0.752% at Tuesday's close.
    "The (Treasury) market is just a complete mess right now,"
said Thomas Simons, senior money market economist at Jefferies
in New York. 
    He said both the stock and Treasuries markets were waiting
for U.S. government guidance on measures "to soften the blow
from the virus as far as the economy is concerned." 
    The White House is examining tax relief measures, loan
guarantees, reimbursing workers for lost pay, aid to small and
midsize businesses, and support for airlines, hotels and other
travel businesses, Treasury Secretary Steven Mnuchin told
lawmakers on Wednesday. 
    The Treasury sold $24 billion of 10-year notes on Wednesday
into average demand, following Tuesday's weak $38 billion
auction of three-year notes.
    After falling to a record low 0.318% on Monday, the 10-year
Treasury yields rose as high as 0.862% heading into the auction.
    "When you have that kind of volatility it's extraordinarily
difficult to price," Simons said.
    Some investors are growing concerned about liquidity
disruptions in the Treasury market given recent large shifts in
yields.
    "It's conditional. If you get a couple days where things
calm down because there's no fresh news and we don't get big
swings, then the volume kind of comes back and the bids and
offers tighten up," said Lou Brien, a strategist at DRW Trading
in Chicago.
    The yield curve between three-month bills and
10-year notes steepened as far as 42 basis points on Wednesday,
after briefly inverting on Monday.
    An inversion is a bearish signal for the economy. The curve
has since steepened on anticipation that the Federal Reserve
will cut rates to zero and launch new quantitative easing to
offset the economic impact of the coronavirus.
    Treasuries were little changed after the U.S. Labor
Department reported its consumer price index unexpectedly
increased 0.1% last month, as rising food and accommodation
costs offset cheaper gasoline.
     After boosting its limit on daily cash injections earlier
this week, the New York Federal Reserve on Wednesday accepted
all of the $132.38 billion in bids from primary dealers at an
overnight repurchase agreement (repo) operation.
   It was the largest amount since the liquidity operations
began in September.
    
    March 11 Wednesday 2:21PM New York / 1921 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.425        0.4325    0.007
 Six-month bills               0.39         0.3973    -0.022
 Two-year note                 101-64/256   0.4858    -0.001
 Three-year note               99-192/256   0.5843    0.028
 Five-year note                102-72/256   0.6574    0.042
 Seven-year note               102-76/256   0.7856    0.065
 10-year note                  106-136/256  0.8139    0.062
 30-year bond                  116-224/256  1.316     0.083
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        -0.75        -4.75    
 spread                                               
 U.S. 3-year dollar swap        -5.50        -5.75    
 spread                                               
 U.S. 5-year dollar swap         0.00        -5.00    
 spread                                               
 U.S. 10-year dollar swap       -0.50        -3.75    
 spread                                               
 U.S. 30-year dollar swap      -48.25        -6.75    
 spread                                               
 

 (By Karen Pierog in Chicago and Karen Brettell in New York
Editing by Paul Simao and Tom Brown)
  
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