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Karen Brettell

TREASURIES-Yields fall as China cancels US farm visits

20 Sep 2019

(Recasts with China canceling farm visits, updates prices) * Chinese delegation cancels U.S. farm visits * Fed to support repo market through October * Fed interest rate policy in focus By Karen Brettell NEW YORK, Sept 20 U.S. Treasury yields fell on Friday after a Chinese delegation canceled planned visits to U.S. farms, raising concerns that the United States and China are unlikely to forge a trade deal in the near term. The Montana Farm Bureau said that the delegation canceled their trip to Montana and will instead return to China sooner than originally scheduled. U.S. President Donald Trump said earlier on Friday that his administration was "making a lot of progress" with China, as deputy-level trade talks continued for a second day and Washington lifted tariffs on more than 400 Chinese products. Benchmark 10-year notes gained 6/32 in price to yield 1.755%, down from 1.774% on Thursday. Bonds were also supported after the New York Federal Reserve said it plans to pour cash into the U.S. banking system through early October to avert another market disruption, after the cost of loans in the overnight repurchase agreement (repo) market soared to 10% on Tuesday. “The repo focus has completely overwhelmed the focus on the Fed,” said Brian Daingerfield, head of G10 FX Strategy, Americas at NatWest Markets. “I think the market is quite focused on what that means for longer-term funding costs.” High short-term funding costs can reduce demand for fixed income including Treasuries as it makes it more expensive to fund the positions. The U.S. central bank is expected to introduce a longer-term solution to ease conditions as funding stresses are seen as likely to pick up again into year-end. Investors are also focused on whether further interest rate cuts are likely this year, after the Fed cut benchmark rates for the second time this year on Wednesday. New projections showed policymakers at the median expected rates to stay within the new range through 2020. However, in a sign of ongoing divisions within the Fed, seven of 17 policymakers projected one more quarter-point rate cut in 2019. “This has been a month where central banks have really reserved fire,” Daingerfield said. “You have seen some flattening of the curve, that reflects dovish disappointment not just from the Fed but from central banks across the G10 this month.” The yield curve between two-year and 10-year notes has flattened to 3 basis points, from 7 basis points before the Fed statement on Wednesday. Fed officials put their divisions on full display on Friday with warnings of a slowdown and financial risks bookending talk of how well things are going. (Editing by Nick Zieminski and Steve Orlofsky) )

TREASURIES-Yields steady as funding pressures ease

20 Sep 2019

* Fed injects liquidity in short-term markets for fourth day * Fed interest rate policy in focus By Karen Brettell NEW YORK, Sept 20 U.S. Treasury yields were steady on Friday as the New York Federal Reserve conducted another repo operation to ease conditions in the short-term lending markets, and as investors continued to evaluate whether further interest rate cuts this year are likely. The average interest rate banks charge each other to borrow reserves overnight on Thursday fell below the upper-end of the Federal Reserve's target range for the first time this week, as the Fed flooded billions in cash into the banking system to address turmoil in money markets. The New York Fed on Friday awarded $75 billion at its repurchase agreement (repo) operation, the fourth operation this week, after short-term funding costs soared to as high as 10% on Tuesday. “The repo focus has completely overwhelmed the focus on the Fed,” said Brian Daingerfield, head of G10 FX Strategy, Americas at Natwest Markets. “I think the market is quite focused on what that means for longer-term funding costs.” High short-term funding costs can reduce demand for fixed income including Treasuries as it makes it more expensive to fund the positions. Fed Chairman Jerome Powell said on Wednesday that the Fed will conduct repurchase operations as needed to keep the rate within its target range. The U.S. central bank is expected, however, to introduce a longer-term solution to ease conditions as funding stresses are seen as likely to pick up again into year-end. Investors are also focused on whether further interest rate cuts are likely this year, after the Fed cut benchmark rates for the second time this year on Wednesday. New projections showed policymakers at the median expected rates to stay within the new range through 2020. However, in a sign of ongoing divisions within the Fed, seven of 17 policymakers projected one more quarter-point rate cut in 2019. “This has been a month where central banks have really reserved fire,” Daingerfield said. “You have seen some flattening of the curve, that reflects dovish disappointment not just from the Fed but from central banks across the G10 this month.” Benchmark 10-year notes were last up 1/32 in price to yield 1.772%, down from 1.774% on Thursday. The yield curve between two-year and 10-year notes has flattened to 3 basis points, from 7 basis points before the Fed statement on Wednesday. Boston Fed President Eric Rosengren, who dissented from the decision to cut interest rates this week, repeated on Friday that monetary stimulus was not needed and posed its own problems. (Editing by Nick Zieminski ) )

TREASURIES-Yields edge lower after Fed as funding costs ease

19 Sep 2019

(Updates prices) * Fed cut rates, divided on further decreases * Funding markets stabilize, helping demand for U.S. debt By Karen Brettell NEW YORK, Sept 19 U.S. Treasury yields fell on Thursday after the Federal Reserve meeting minutes on Wednesday showed division among policymakers on whether further rate cuts are likely, and as pressures in the short-term funding markets eased. The U.S. central bank cut the benchmark overnight lending rate to a range of 1.75% to 2.00% on a 7-3 vote and nodded to ongoing global risks and "weakened" business investment and exports. New projections showed policymakers at the median expected rates to stay within the new range through 2020. However, in a sign of ongoing divisions within the Fed, seven of 17 policymakers projected one more quarter-point rate cut in 2019. “They basically kept the door open to further cuts, but didn’t really walk through it or commit to walking through it in any way, shape, or form,” said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York. Benchmark 10-year notes gained 4/32 in price to yield 1.770%, down from 1.784% on Wednesday. A flattening yield curve also reflected concerns that the Fed may not be aggressive as needed in cutting rates to stem economic weakness. The yield curve between two-year and 10-year notes has flattened to 2 basis points, from 7 basis points before the Fed statement. The yield curve inverted in August for the first time in more than a decade, a signal that a recession is likely to follow in one-to-two years, though it has held in positive territory since Sept. 4. The New York Federal Reserve on Thursday conducted a repurchase agreement (repo) operation for the third consecutive day in a bid to ease funding pressures that on Tuesday sent the cost of overnight loans soaring to 10%. Falling funding costs helped support demand for Treasuries on Thursday as it made the cost of financing fixed income positions cheaper. “You’re seeing a little bit better performance in Treasuries partly because repo has actually declined,” Goldberg said. Concerns about rising tensions between the United States and Iran have also added a safety bid for U.S. debt this week. Iran warned U.S. President Donald Trump on Thursday against being dragged into all-out war in the Middle East following an attack on Saudi Arabian oil facilities which Washington and Riyadh blame on Tehran. Investors are also focused on trade negotiations between the United States and China, with negotiators set to resume face-to-face talks on Thursday for the first time in nearly two months. (Editing by Bernadette Baum and Nick Zieminski) )

TREASURIES-Yields fall on Fed division over future rate cuts, lower funding costs

19 Sep 2019

* Fed cut rates, divided on further decreases * Funding markets stabalize, helping demand for U.S. debt By Karen Brettell NEW YORK, Sept 19 U.S. Treasury yields fell on Thursday after the Federal Reserve on Wednesday showed division among policymakers on whether further rate cuts are likely, and as pressures in the short-term funding markets eased. The U.S. central bank cut the benchmark overnight lending rate to a range of 1.75% to 2.00% on a 7-3 vote and nodded to ongoing global risks and "weakened" business investment and exports. New projections showed policymakers at the median expected rates to stay within the new range through 2020. However, in a sign of ongoing divisions within the Fed, seven of 17 policymakers projected one more quarter-point rate cut in 2019. “They basically kept the door open to further cuts, but didn’t really walk through it or commit to walking through it in any way, shape, or form,” said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York. A flattening yield curve also reflected concerns that the Fed may not be aggressive as needed in cutting rates to stem economic weakness. Benchmark 10-year notes were last up 6/32 in price to yield 1.765%, down from 1.784% on Wednesday. The yield curve between two-year and 10-year notes has flattened to 3 basis points, from 7 basis points before the Fed statement. The yield curve inverted in August for the first time in more than a decade, a signal that a recession is likely to follow in one-to-two years, though it has held in positive territory since Sept. 4. The New York Federal Reserve on Thursday conducted a repurchase agreement (repo) operation for the third consecutive day in a bid to ease funding pressures that on Tuesday sent the cost of overnight loans soaring to 10%. Falling funding costs helped support demand for Treasuries on Thursday as it made the cost of financing fixed income positions cheaper. “You’re seeing a little bit better performance in Treasuries partly because repo has actually declined,” Goldberg said. Concerns about rising tensions between the United States and Iran have also added a safety bid for U.S. debt this week. Iran warned U.S. President Donald Trump on Thursday against being dragged into all-out war in the Middle East following an attack on Saudi Arabian oil facilities which Washington and Riyadh blame on Tehran. Investors are also focused on trade negotiations between the United States and China, with negotiators set to resume face-to-face talks on Thursday for the first time in nearly two months. (Editing by Bernadette Baum) )

REFILE-TREASURIES-Yields rise as Fed douses hopes for further rate cuts

19 Sep 2019

(Fixes typo in headline) * Fed cuts rates, interest on excess reserves * Policymakers indicate further cuts may not occur * Trump says there are other options than war with Iran By Karen Brettell NEW YORK, Sept 18 U.S. Treasury yields rose on Wednesday and the yield curve flattened after the Federal Reserve cut interest rates for the second time this year, but indicated that further cuts may not follow. In lowering the benchmark overnight lending rate to a range of 1.75% to 2.00% on a 7-3 vote, the Fed's policy-setting committee nodded to ongoing global risks and "weakened" business investment and exports. New projections showed policymakers at the median expected rates to stay within the new range through 2020. However, in a sign of ongoing divisions within the Fed, seven of 17 policymakers projected one more quarter-point rate cut in 2019. “The market’s interpreting it incrementally a bit hawkish,” said Jon Hill, an interest rate strategist at BMO Capital Markets in New York. “The fact that they don’t indicate any additional cuts we’ll take with a grain of salt. Keep in mind that back in June there was no indication they were going to cut the rest of this year either, and really the language in the statement remains that they will act as appropriate,” Hill added. Two-year yields rose to 1.758%, from, 1.680% before the Fed statement. Benchmark 10-year yields increased to 1.793%, from 1.750%. The yield curve between two-year and 10-year notes flattened to three basis points, from seven basis points before the Fed statement. The U.S. central bank also lowered the interest it pays on excess bank reserves (IOER) by 30 basis points to 1.80%, after turmoil in the short-term funding markets this week briefly pushed the overnight bank-to-bank lending rates above the U.S. central bank's target range. In the press conference following the interest rate decision, Chairman Jerome Powell said the Fed will conduct repurchase operations as needed to keep the rate within its target range. The New York Federal Reserve on Wednesday accepted $75.0 billion in bids, the maximum available, from primary dealers at an emergency repurchase agreement operation. Earlier, ongoing concerns about last weekend’s attack on Saudi Arabian crude oil facilities provided a safety bid for U.S. bonds. U.S. President Donald Trump said on Wednesday there were many options short of war with Iran after Saudi Arabia displayed remnants of drones and missiles it said were used in the attack that was "unquestionably sponsored" by Tehran. Concerns about a spike in oil prices harming the economy, however, have eased since Saudi Arabia’s energy minister said on Tuesday that the kingdom will restore its lost oil production by the end of September. (Editing by David Gregorio) )

TREASURIES-Yields fall before expected Fed rate cut

18 Sep 2019

* Fed expected to cut rates by 25 bps * Short-term funding pressures remain elevated * U.S. increases sanctions on Iran By Karen Brettell NEW YORK, Sept 18 U.S. Treasury yields fell on Wednesday before the Federal Reserve is expected to cut interest rates and address recent stress in short-term funding markets that has sent the cost of overnight loans soaring. Investors will be focused on forward guidance as Fed policymakers are deeply divided on the need for further easing as U.S. economic data improves. Fed Chairman Jerome Powell will be expected to explain the central bank’s position in a news conference after the rate decision. “The interesting aspect for me will be how Chair Powell characterizes recent strength in the data without sounding hawkish at the same time, because they do want to keep the door open for more cuts,” said Subadra Rajappa, head of U.S. rates strategy at Societe Generale in New York. Benchmark 10-year notes were last up 12/32 in price to yield 1.772%, down from 1.814% on Tuesday. Some analysts also expect the Fed may cut the interest rate it pays on excess reserves as bank funding costs remained elevated despite efforts to boost liquidity. Cash available to banks for their short-term funding needs all but dried up this week, and interest rates in U.S. money markets shot up to as high as 10% for some overnight loans, more than four times the Fed's rate. The New York Federal Reserve on Wednesday accepted $75.0 billion in bids, the maximum available, from primary dealers at a repurchase agreement (repo) operation meant to keep the federal funds rate within its target range of 2.00-2.25%. The effective, or average interest rate, on what banks charge each other to borrow reserves overnight rose to 2.30% on Tuesday, breaking above the top-end of the central bank's target range for the first time since the global credit crisis more than a decade ago. Ongoing concerns about last weekend’s attack on Saudi Arabian crude oil facilities is also providing a safety bid for U.S. government debt. A U.S. official said on Tuesday the United States believes the attacks originated in southwestern Iran. Iran has denied involvement in the strikes. U.S. President Donald Trump said on Wednesday he had ordered Treasury Secretary Steven Mnuchin to "substantially increase sanctions" imposed on Iran, amid escalating tensions between Washington and Tehran. Concerns about a spike in oil prices harming the economy, however, have eased since Saudi Arabia’s energy minister said on Tuesday that the kingdom will restore its lost oil production by the end of September. (Editing by Nick Zieminski ) )

TREASURIES-Yields edge lower before Fed meeting

17 Sep 2019

(Updates prices) * Fed expected to cut rates on Wednesday * Soaring repo costs show stress in funding markets * Higher oil prices, Iran tension boosts safety buying By Karen Brettell NEW YORK, Sept 17 U.S. Treasury yields fell on Tuesday, ahead of an expected interest rate cut by the Federal Reserve at the conclusion of its two-day policy meeting on Wednesday. While a rate cut is seen as near-certain this month, there are deep disagreements among Fed policymakers. Investors will focus on the so-called “dot plot,” which shows where policymakers expect rates to be in the future. “I would expect to see a lot more dispersion between all the dots going forward especially as we know there are a lot of contrasting views at the Fed right now,” said Justin Lederer, an interest rate strategist at Cantor Fitzgerald in New York. The U.S. central bank will also be expected to address stress in the U.S. funding markets. The cost for banks and Wall Street dealers to borrow dollars in the overnight repurchase agreement market rose as high as 10% on Tuesday, well above the Fed’s target range of 2.00%-2.25%. It then fell to zero after the New York Federal Reserve said it would conduct a repurchase operation in a bid to lower the funding costs. “The Fed’s going to have to in some way address what’s going on in the funding markets,” Lederer said. Safe-haven U.S. debt was also bid on concern that an attack on Saudi Arabian crude oil facilities could lead to further spikes in oil costs, weighing on the economy, and potentially spur a war between the United States and Iran. U.S. President Donald Trump said on Monday that it looked like Iran was behind the weekend strike on the Saudi facilities, which cut 5% of global production but stressed he did not want to go to war. Iran denied it was to blame. Benchmark 10-year notes gained 14/32 in price to yield 1.794%, down from 1.843% on Monday. The notes briefly gave up price gains after Reuters reported that Saudi Arabia's oil output will be fully restored quicker than thought, taking two or three weeks not months as initial indications suggested. Data on Tuesday showed that U.S. manufacturing output increased more than expected in August, boosted by a surge in machinery and primary metals production. (Editing by Bernadette Baum and Lisa Shumaker) )

CORRECTED-TREASURIES-Yields edge lower before Fed meeting

17 Sep 2019

(Corrects nature of repurchase operation in seventh paragraph) * Fed expected to cut rates on Wednesday * Soaring repo costs show stress in funding markets * Higher oil prices, Iran tension boosts safety buying By Karen Brettell NEW YORK, Sept 17 U.S. Treasury yields fell on Tuesday, ahead of an expected interest rate cut by the Federal Reserve at the conclusion of its two-day policy meeting on Wednesday. While a rate cut is seen as near-certain this month, there are deep disagreements among Fed policymakers on whether it or further decreases are warranted. Investors will focus on the so-called “dot plot,” which shows where policymakers expect rates to be in the future. “The dot plot will be interesting. I would expect to see a lot more dispersion between all the dots going forward especially as we know there are a lot of contrasting views at the Fed right now,” said Justin Lederer, an interest rate strategist at Cantor Fitzgerald in New York. The U.S. central bank will also be expected to address stress in the U.S. funding markets. The cost for banks and Wall Street dealers to borrow dollars in the overnight repurchase agreement market rose as high as 10% on Tuesday, well above the Fed’s target range of 2.00%-2.25%. It then fell to zero after the New York Federal Reserve said it would conduct a repurchase operation in a bid to lower the funding costs. “The Fed’s going to have to in some way address what’s going on in the funding markets,” Lederer said. Safe-haven U.S. debt was also bid on concern that an attack on Saudi Arabian crude oil facilities could lead to further spikes in oil costs, weighing on the economy, and potentially spur a war between the United States and Iran. U.S. President Donald Trump said on Monday that it looked like Iran was behind the weekend strike on the Saudi facilities, which cut 5% of global production, but stressed he did not want to go to war. Iran denied it was to blame. Benchmark 10-year notes were last up 5/32 in price to yield 1.828%, down from 1.843% on Monday. The notes briefly gave up price gains after Reuters reported that Saudi Arabia's oil output will be fully restored quicker than thought, taking two or three weeks not months as initial indications suggested. Data on Tuesday showed that U.S. manufacturing output increased more than expected in August, boosted by a surge in machinery and primary metals production. (Editing by Bernadette Baum) )

TREASURIES-Yields edge lower before Fed meeting

17 Sep 2019

* Fed expected to cut rates on Wednesday * Soaring repo costs show stress in funding markets * Higher oil prices, Iran tension boosts safety buying By Karen Brettell NEW YORK, Sept 17 U.S. Treasury yields edged lower on Tuesday, ahead of an expected interest rate cut by the Federal Reserve at the conclusion of its two-day policy meeting on Wednesday. While a rate cut is seen as near-certain this month, there are deep disagreements among Fed policymakers on whether it or further decreases are warranted. Investors will focus on the so-called “dot plot,” which shows where policymakers expect rates to be in the future. “The dot plot will be interesting. I would expect to see a lot more dispersion between all the dots going forward especially as we know there are a lot of contrasting views at the Fed right now,” said Justin Lederer, an interest rate strategist at Cantor Fitzgerald in New York. The U.S. central bank will also be under pressure to address stress in the U.S. funding markets. The cost for banks and Wall Street dealers to borrow dollars in the overnight repurchase agreement market rose as high as 10% on Tuesday, well above the Fed’s target range of 2.00%-2.25%. “The Fed’s going to have to in some way address what’s going on in the funding markets,” Lederer said. Safe-haven U.S. debt was also bid on concern that an attack on Saudi Arabian crude oil facilities could lead to further spikes in oil costs, weighing on the economy, and potentially spur a war between the United States and Iran. U.S. President Donald Trump said on Monday that it looked like Iran was behind the weekend strike on the Saudi facilities, which cut 5% of global production, but stressed he did not want to go to war. Iran denied it was to blame. Benchmark 10-year notes were last up 4/32 in price to yield 1.829%, down from 1.843% on Monday. Data on Tuesday showed that U.S. manufacturing output increased more than expected in August, boosted by a surge in machinery and primary metals production. (Editing by Bernadette Baum) )

TREASURIES-Yields fall as soaring oil adds to global growth fears

16 Sep 2019

(Adds yield curve, updates prices) * Oil price surge may add to economic weakness * Federal Reserve expected to cut rates on Wednesday By Karen Brettell NEW YORK, Sept 16 U.S. Treasury yields fell on Monday after weekend attacks on crude facilities in Saudi Arabia shut about 5% of the world's oil supply, sending oil prices soaring and increasing demand for safe haven U.S. debt. U.S. officials blamed Iran and President Donald Trump said Washington was "locked and loaded" to retaliate. The Iran-aligned Houthi movement that controls Yemen's capital claimed responsibility for the attack, which damaged the world's biggest crude oil processing plant. Iran denied blame and said it was ready for "full-fledged war." "It's a flight to quality as a result of the Saudi oil field attacks, which have added yet another uncertainty for the Fed and the global growth outlook," said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets in New York. Benchmark 10-year notes gained 18/32 in price to yield 1.838%. The yield is down from a one-and-a-half month high of 1.908% reached on Friday, but up from three-year lows of 1.429% reached on Sept. 3. The yield curve between two-year and 10-year notes flattened to 8 basis points, from 10 basis points. The conflict comes as global central banks are cutting interest rates in a bid to revive flagging growth. The Federal Reserve is expected to cut rates by 25 basis points when it concludes its two-day meeting on Wednesday. Data from China added to global growth concerns on Monday, with growth in industrial production dropping to its weakest in 17-1/2 years amid spreading pain from a trade war with the United States and softening domestic demand. In the United States, the New York Federal Reserve said its gauge of business growth in New York state declined more than forecast in September. (Reporting by Karen Brettell; Editing by Will Dunham) )

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