June 9, 2020 / 8:50 PM / a month ago

TREASURIES-Yields tumble ahead of Federal Reserve policy meeting

 (Recasts, updates yields, adds risk-off sentiment with stocks)
    By Karen Pierog
    CHICAGO, June 9 (Reuters) - U.S. Treasury yields fell on
Tuesday as investors defensively bought government debt and
awaited word from the Federal Reserve about yield curve control
and negative interest rates, subjects of broad speculation,
after its policy meeting ends on Wednesday. 
    The risk-off sentiment, which sent some stocks lower, helped
push yields down the most on the long end of the yield curve.
The benchmark 10-year yield was last down 6.2 basis
points at 0.822%, 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
began 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 tool 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.
    The Treasury, which is financing massive spending to combat
the economic fallout from the coronavirus outbreak, sold $29
billion of 10-year notes into soft demand. The bid to cover
ratio of 2.26 times was lower than the average of 2.43 times and
the high yield of 0.832% was more than a basis point higher than
where the market yield was at the bidding deadline, according to
post-auction commentary from analysts. 
    The 30-year Treasury yield was last down 8.1
basis points at 1.576%.
    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 61.60 basis points, about 3 basis points
lower than at Monday's close. The yield curve spread on Friday
hit its widest since late March at more than 72 basis points
when the stock market was bottoming.
June 9 Tuesday 3:28PM New York / 2028 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.17         0.1729    -0.002
 Six-month bills               0.185        0.1877    -0.005
 Two-year note                 99-216/256   0.2044    -0.026
 Three-year note               99-250/256   0.2578    -0.037
 Five-year note                99-72/256    0.3961    -0.057
 Seven-year note               99-16/256    0.6377    -0.056
 10-year note                  98-32/256    0.822     -0.062
 20-year bond                  95-240/256   1.3584    -0.073
 30-year bond                  92-60/256    1.5765    -0.081
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap         8.50         1.50    
 U.S. 3-year dollar swap         5.50         0.50    
 U.S. 5-year dollar swap         4.75         0.75    
 U.S. 10-year dollar swap       -1.50         0.50    
 U.S. 30-year dollar swap      -47.00         1.25    

 (By Karen Pierog
Editing by Marguerita Choy, Nick Zieminski and Jonathan Oatis)
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