June 9, 2020 / 2:54 PM / a month ago

TREASURIES-Yields tumble ahead of Federal Reserve policy meeting

    By Karen Pierog
    CHICAGO, June 9 (Reuters) - U.S. Treasury yields fell on
Tuesday benefiting from weaker stocks as the market awaited word
from the Federal Reserve about yield curve control and negative
interest rates, subjects of broad speculation, on Wednesday
after its policy meeting. 
    The move was more pronounced on the long end. The benchmark
10-year yield was last down 8 basis points at
0.8038%, building on Monday's retreat. Yields
spiked on Friday in the wake of a better-than-expected May
unemployment report with the 10-year note yield rising above
0.9% for the first time since March 20.
    Tony Rodriguez, head of fixed income strategy at Nuveen,
said the jobs report in particular will give the Fed, which
begins its two-day meeting on Tuesday, "quite a bit of air
cover" to argue against negative interest rates.
     As for implementing yield curve control in a bid to keep
rates near zero, the Fed may indicate only that its evaluation
is ongoing, Rodriguez said.
    "They just have a 'luxury' of being able to continue to have
it as a potential tool in their took kit," he said, adding that
it should remain theoretical and part of the Fed's forward
guidance given that "yields are low enough."
    Under yield curve control, the Fed can limit yield increases
by buying as many bonds as necessary to keep yields from rising
over a certain target.
    Later on Tuesday, the Treasury, which is financing massive
spending to combat the economic fallout from the coronavirus
outbreak, will sell $29 billion of 10-year notes.
    Rodriguez said that primary dealers' "pretty substantial"
short position in the 10-year part of the curve should help the
auction.
    The 30-year Treasury yield was last down 10.6
basis points at 1.552%.
    A closely watched part of the U.S. Treasury yield curve
measuring the gap between yields on two- and 10-year Treasury
notes that is seen as an indicator of economic
expectations was at 59.60 basis points, about 5 basis points
lower than at Monday's close. The yield curve spread on Friday
hit its widest since late March when the stock market was
bottoming at more than 72 basis points. 
June 9 Tuesday 9:14AM New York / 1414 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.17         0.1729    -0.002
 Six-month bills               0.1875       0.1903    -0.003
 Two-year note                 99-216/256   0.2044    -0.026
 Three-year note               99-248/256   0.2604    -0.035
 Five-year note                99-64/256    0.4025    -0.051
 Seven-year note               99-32/256    0.6285    -0.066
 10-year note                  98-76/256    0.8038    -0.080
 20-year bond                  96-92/256    1.3336    -0.097
 30-year bond                  92-204/256   1.5518    -0.106
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         8.25         1.25    
 spread                                               
 U.S. 3-year dollar swap         5.25         0.25    
 spread                                               
 U.S. 5-year dollar swap         4.25         0.25    
 spread                                               
 U.S. 10-year dollar swap       -2.00         0.00    
 spread                                               
 U.S. 30-year dollar swap      -48.00         0.25    
 spread                                               
                                                      
 

 (By Karen Pierog
Editing by Marguerita Choy)
  
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