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TREASURIES-Yields fall as stocks drop for fourth straight day

 (Updates prices, adds Kaplan comment)
    By Chuck Mikolajczak
    Sept 21 (Reuters) - U.S. Treasury yields moved lower, but
recovered from their worst levels of the day as a sell-off in
equity markets continued from the prior week.
    Major averages on Wall Street dropped once again, with the
S&P 500 on track for its fourth straight decline after
touching its lowest level since July 31. Investors have become
unnerved by a variety of concerns, including the possibility of
new coronavirus-driven lockdowns, election uncertainty and the
likelihood fresh fiscal stimulus will remain stalled.

    The yield on 10-year Treasury notes was down 2.8
basis points to 0.666%, after falling as low as 0.648% on the
day. 
    "You had a little bit of curve steepening towards the end of
last week but right now the attention for Treasuries seems to be
on the stock market," said Jim Barnes, director of fixed income
at Bryn Mawr Trust in Berwyn, Pennsylvania. 
    "It’s not just the weakness in stocks for today. It is the
weakness we’ve seen in stocks over the past few days that is
finally catching up to the bond investors."
    The benchmark S&P index has dropped more than 4% since the
U.S. Federal Reserve's policy announcement on Sept. 16 in which
the central bank pledged to keep interest rates near zero until
inflation is on track to modestly exceed a 2% target for some
time.
    On Monday, Dallas Federal Reserve President Robert Kaplan
said the economy will likely need near-zero interest rates for
the next two and a half or three years, but the central bank
shouldn't lock itself into low borrowing costs beyond then.

    The index now stands down more than 9% from its Sept. 2
closing high, moving closer to what is traditionally known as a
"correction," or fall of 10%. 
    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 52.9 basis points, after falling as far as
51.2, its lowest level since Sept. 4 but still well above the
recent low of 33 basis points on July 24.
    The two-year U.S. Treasury yield, which typically
moves in step with interest rate expectations, was down 0.2
basis points to 0.137%. 

      September 21 Monday 2:35PM New York / 1835 GMT
                               Price                  
 US T BONDS DEC0               176-21/32    0-21/32   
 10YR TNotes DEC0              139-156/256  0-52/256  
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.085        0.0862    -0.005
 Six-month bills               0.105        0.1065    -0.008
 Two-year note                 99-250/256   0.1371    -0.002
 Three-year note               99-234/256   0.1539    -0.005
 Five-year note                99-236/256   0.2659    -0.013
 Seven-year note               100-84/256   0.4519    -0.021
 10-year note                  99-156/256   0.6658    -0.028
 20-year bond                  98-164/256   1.202     -0.030
 30-year bond                  98-240/256   1.4187    -0.033
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         7.75         0.00    
 spread                                               
 U.S. 3-year dollar swap         7.25         0.00    
 spread                                               
 U.S. 5-year dollar swap         6.00         0.25    
 spread                                               
 U.S. 10-year dollar swap        0.50         0.00    
 spread                                               
 U.S. 30-year dollar swap      -36.50         0.00    
 spread (Reporting by Chuck Mikolajczak; Editing by Nick Zieminski)
  
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