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TREASURIES-Yields tick higher as Fed reinforces policy stance

 (Adds 5-yr auction results, Evans comments)
    By Chuck Mikolajczak
    Sept 23 - U.S. Treasury yields edged higher on Wednesday as
comments from a flurry of Federal Reserve officials reinforced
the central bank's recently announced policy stance.
    The yield on the 10-year remained within the 6-basis-point
range it has held since the Fed's most recent policy statement
on Sept. 16. On Wednesday, Fed Vice Chair Richard Clarida said
policymakers "are not even going to begin thinking" about
raising interest rates until inflation hits 2%, comments aimed
at cementing the public's understanding of the central bank's
new approach to monetary policy.
    Cleveland Federal Reserve Bank President Loretta Mester said
the economy has rebounded more strongly than expected since
businesses began to reopen a few months ago, but the recovery is
not broad-based or sustainable and monetary policy will need to
remain accommodative for several years.
    Adding to the chorus was Chicago Federal Reserve President
Charles Evans, who said the central bank will keep rates at zero
 until the economy reaches full employment, inflation is
"sustainably" at 2% and the Fed is confident it will overshoot
that goal.
    "The Fed is trying to make sure they don’t really move
markets here," said Gennadiy Goldberg, interest rates strategist
at TD Securities in New York. 
    "We are still trying to figure out exactly what the next
steps are on Capitol Hill. ... It certainly is kind of a waiting
and watching type of environment." 
    On Tuesday, the Democratic-led U.S. House of Representatives
passed a stopgap funding bill to keep the federal government
operating through Dec. 11 after striking a deal with
Republicans. However, another round of coronavirus aid remains
stalled.
    The yield on 10-year Treasury notes was up 1.3
basis points at 0.677 percent. 
    Fed Chair Jerome Powell said both the U.S. Congress and the
Fed need to "stay with it" in as they engage in buttressing the
economic recovery.
    In U.S. economic data, IHS Markit said its flash U.S.
Composite PMI Output Index for September slowed to 54.4 from
54.6 in the prior month, while the housing market remains a
bright spot, as the July Federal Housing Finance Agency house
price index climbed by 1% on a seasonally adjusted basis.

    Bidding for an afternoon auction of $53 billion worth of
5-year notes was described as strong by analysts, with dealers
accounting for 20.7% of accepted bids compared to 26% on
average, according to a note from Ben Jeffery of BMO Capital
Markets.
    The two-year U.S. Treasury yield, which typically
moves in step with interest rate expectations, was up 0.5 basis
points at 0.141 percent. 
    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 53.5 basis points, rebounding from a
two-week low of 51.2 hit on Monday.

      September 23 Wednesday 2:04PM New York / 1804 GMT
                               Price                  
 US T BONDS DEC0               176-14/32    -0-8/32   
 10YR TNotes DEC0              139-128/256  -0-32/25  
                                            6         
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.0975       0.0989    0.000
 Six-month bills               0.105        0.1065    -0.002
 Two-year note                 99-248/256   0.1406    0.005
 Three-year note               99-230/256   0.1592    0.008
 Five-year note                99-232/256   0.2691    0.009
 Seven-year note               100-68/256   0.461     0.011
 10-year note                  99-128/256   0.6773    0.013
 20-year bond                  98-140/256   1.2074    0.009
 30-year bond                  98-188/256   1.4271    0.012
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         8.25         0.25    
 spread                                               
 U.S. 3-year dollar swap         7.75         0.50    
 spread                                               
 U.S. 5-year dollar swap         6.25         0.25    
 spread                                               
 U.S. 10-year dollar swap        0.75         0.00    
 spread                                               
 U.S. 30-year dollar swap      -36.00         0.25    
 spread (Reporting by Chuck Mikolajczak; editing by Jonathan Oatis and
Bernadette Baum)
  
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