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TREASURIES-U.S. yields fall on Ukraine tensions, caution ahead of Fed meeting

Gertrude Chavez-Dreyfuss Reuters

NEW YORK, Jan 24 (Reuters) – U.S. Treasury yields edged down across the curve on Monday as investors grew nervous abouta potential conflict between Russia and Ukraine, as well as a Federal Reserve that is widely expected this week to flag an interest rate hike in March.

The U.S. 2-year note auction showed strong results, adding to bids on Treasuries.

U.S. benchmark 10-year and 30-year yields, along with those on the front end such as 2-year and 5-year notes, slid to more than one-week lows. Both the U.S. 2-year and 5-year notes reflect interest rate expectations.

U.S stocks tanked as well in early afternoon trading, heightening the cautious market sentiment. Nasdaq .IXIC closing in on a line that would signal it has been in a bear market since peaking in November.

Treasuries, however, were not yet in panic mode, with moves in yields range-bound overall.

The U.S. central bank starts its two-day policy meeting on Tuesday. Investors expect the Fed to signal that it plans to raise rates by 25 basis points in March, tightening monetary policy for the first time since it slashed its overnight benchmark interest rate to the near-zero level soon after the onset of the coronavirus pandemic nearly two years ago.

Fed funds futures, which track short-term rate expectations, have priced in a total of four Fed rate increases this year, as the central bank fights to stem soaring inflation.

“We expect the FOMC (Federal Open Market Committee) to sound just a bit less hawkish this week than the market anticipates,” said Well Fargo in a research note.

“Delivering rhetoric to match (match) expectations will be difficult. It is hard to imagine Chair (Jerome) Powell will say anything that pushes market pricing beyond four hikes for 2022 in the immediate aftermath of the meeting.”

Aside from the Fed, investors fretted about tensions in Ukraine.

NATO said on Monday it was putting forces on standby and reinforcing Eastern Europe with more ships and fighter jets.

The move suggested that the West is bracing for Russia to attack Ukraine after gathering about 100,000 troops within reach of the Russian-Ukrainian border. Russia though denies any intention of invading.

In early afternoon trading, the benchmark U.S. 10-year yield fell nearly 2 basis points to 1.7280% US10YT=RR, after earlier hitting an 11-day low of 1.7070%.

“We have a range to start the year at 1.50%-1.90% in the 10-year,” said Gregory Faranello, head of U.S. rates at AmeriVet Securities in New York. “We got to 1.90% and we did that very quickly. So consolidation makes sense.”

U.S. 30-year yields were little changed at 2.063%. They also slid to more than a one-week low of 2.0330% US30YT=RR.

On the shorter-end of the curve, U.S. Treasury 2-year and 5-year yields slipped to 0.9525% US2YT=RR and 1.5057% US5YT=RR, respectively.

The U.S. 2-year note auction, meanwhile, showed solid demand, with the high yield at 0.99%, compared with the expected rate of 1.004% at the bid deadline, suggesting investors were willing to buy the note at a lower yield.

The bid-to-cover ratio, a gauge of demand, was at 2.81, compared with an average of 2.5. Indirect accounts, which include foreign central banks, took 66.0% of the total, a record percentage, according to Lou Brien, market strategist at DRW Trading in Chicago.

January 24 Monday 1:54PM New York / 1854 GMT


Current Yield %

Net Change (bps)

Three-month bills US3MT=RR

Six-month bills US6MT=RR

Two-year note US2YT=RR

Three-year note US3YT=RR

Five-year note US5YT=RR

Seven-year note US7YT=RR

10-year note US10YT=RR

20-year bond US20YT=RR

30-year bond US30YT=RR

Last (bps)

Net Change (bps)

U.S. 2-year dollar swap spread

U.S. 3-year dollar swap spread

U.S. 5-year dollar swap spread

U.S. 10-year dollar swap spread

U.S. 30-year dollar swap spread