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TREASURIES-U.S. yields slide as growth concerns weigh, ahead of Fed meeting

·3-min read

By Gertrude Chavez-Dreyfuss NEW YORK, July 27 (Reuters) - U.S. Treasury yields fell on Tuesday, as risk appetite continued to languish amid nagging concerns about high inflation and the fast-spreading Delta coronavirus variant that could thwart global economic growth. Investors are also cautious ahead of the U.S. Federal Reserve's two-day monetary policy meeting, which begins on Tuesday. Analysts said the Fed is likely to stand pat on policy, but could discuss plans for tapering its asset purchases during the Jackson Hole, Wyoming, gathering in August. The yield on 10-year Treasury Inflation-Protected Securities (TIPS) plunged to a record low of -1.147% for a second straight session on Tuesday, as investors bought TIPS concerned about steep consumer prices. U.S. durable goods disappointed expectations, rising 0.8% compared with forecasts for a 2.1% rise. Orders for nondefense capital goods excluding aircraft, a closely watched proxy for business spending plans, rose 0.5% last month, compared with expectations for a 0.7% increase. "We still have concerns about the Delta variant. We're worried about future economic growth, so we see yields lower here," said Stan Shipley, fixed income strategist at Evercore ISI. "It looks like we have made a floor after tumbling from 1.75% in the U.S. 10-year. But it's hard to get very excited yet. When we were at 1.75%, that bear trade is very crowded and there are still some people that need to unwind that trade," he added. In midmorning trading, the U.S. 10-year Treasury yield slid to 1.241% from 1.276% late on Monday. U.S. 30-year yields dropped to at 1.892% from Monday's 1.925%. The Treasury is also selling $61 billion in 5-year notes later on Tuesday. Ahead of the auction, U.S. 5-year note yields were down at 0.695%, from Monday's 0.713%. Investors are closely watching the 5-year auction for clues on investor sentiment about Wednesday's Fed statement and the news briefing by Chairman Jerome Powell. The U.S. 5-year note has come to reflect market views on Fed monetary policy. "Outsized strength at the $61 bn offering will be an endorsement of the new, lower, 5-year yield range and hint of conviction that the Fed will remain committed to the new framework and keep policy accommodative for longer," BMO said in a research note on Tuesday. The yield curve, another gauge of risk sentiment, flattened on Tuesday to 103.4 basis points, as measured by the spread between 2-year and 10-year yields. The curve had steepened in the five previous sessions. July 27 Tuesday 10:25AM New York / 1425 GMT Price Current Net Yield % Change (bps) Three-month bills 0.05 0.0507 0.000 Six-month bills 0.0525 0.0532 0.000 Two-year note 99-215/256 0.2055 -0.010 Three-year note 100-8/256 0.3644 -0.011 Five-year note 100-218/256 0.6987 -0.014 Seven-year note 101-176/256 0.9971 -0.028 10-year note 103-136/256 1.2411 -0.035 20-year bond 107-68/256 1.8116 -0.032 30-year bond 110-224/256 1.8956 -0.029 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 7.00 -1.50 spread U.S. 3-year dollar swap 11.00 0.00 spread U.S. 5-year dollar swap 9.00 0.25 spread U.S. 10-year dollar swap 0.50 0.50 spread U.S. 30-year dollar swap -27.50 0.00 spread (Reporting by Gertrude Chavez-Dreyfuss; editing by Jonathan Oatis)

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