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TREASURIES – U.S. Yields Fall as Traders Await Possible Fed Rate Cut

U.S. Treasury yields fell on Wednesday as traders braced for the Federal Reserve’s first interest rate cut in a decade to combat risk from trade disputes and softening global demand. Traders were positioned for at least a quarter-point cut from the Fed’s current target range on key short-term rates at 2 p.m. (1800 GMT) following a two-day policy meeting. “We head into today’s meeting 100% priced for a cut today with the market giving a small probability for 50-basis points,” said Gregory Faranello, head of U.S. rates at AmeriVet Securities. At 11:46 a.m. (1546 GMT), benchmark 10-year Treasury yields were down 2.80 basis points at 2.034%. Two-year yields, which are sensitive to traders’ view on changes in Fed policy, were 2.80 basis points lower at 1.820%. In July, Treasuries have posted a 0.28% loss, reducing their year-to-date return to 4.89%, according to an index compiled by Barclays and Bloomberg. U.S. yields declined on Wednesday in step with their German counterparts as traders bet the European Central Bank is prepared to embark on more stimulus to foster business activity and inflation across the euro zone. Moreover, European yields decreased on worries about a possible no-deal Brexit. Ten-year Bund yields hit -0.44%, a record low. Global bond yields have remained under pressure on worries about the impact of trade tensions between China and the United States. U.S. manufacturers especially in the Midwest have been hard hit. The Chicago Purchasing Management Index, also known as the Chicago Business Barometer, fell to 44.4 this month, the lowest level since December 2015 from 49.7 in June. The poor regional factory figure was offset by a mildly better-than-expected reading on domestic private employment in July from payroll processor ADP. On the supply front, the U.S. Treasury Department said it will sell as expected $84 billion in coupon-bearing debt next week for its August refunding. It will repay $57.3 billion of proceeds to bondholders and raise $26.7 billion in new cash.

July 31 Wednesday 11:47AM New York / 1547 GMT
 US T BONDS SEP9               155-6/32     18/32     
 10YR TNotes SEP9              127-140/256  7/32      
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             2.015        2.0591    -0.036
 Six-month bills               2.005        2.0537    -0.034
 Two-year note                 99-221/256   1.82      -0.028
 Three-year note               99-232/256   1.7826    -0.032
 Five-year note                99-174/256   1.8173    -0.027
 Seven-year note               99-192/256   1.9133    -0.028
 10-year note                  103-4/256    2.0335    -0.028
 30-year bond                  106-148/256  2.558     -0.028
         YIELD CURVE           Last (bps)   Net       
 10-year vs 2-year yield       21.20        0.30      
 30-year vs 5-year yield       74.00        0.50      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap         4.00         1.25    
 U.S. 3-year dollar swap         1.00         1.25    
 U.S. 5-year dollar swap        -3.00         0.50    
 U.S. 10-year dollar swap       -8.50         0.25    
 U.S. 30-year dollar swap      -37.50         0.00    

(Reporting by Richard Leong Editing by Tom Brown)

Published on July 31, 2019 by Richard Leong