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TREASURIES-Awaiting word from the Fed, yields fall back on weak dollar

Credit: REUTERS/DADO RUVIC

U.S. Treasury yields moved back from earlier increases ahead of a Federal Reserve policy statement due on Wednesday afternoon, as a lower U.S. dollar drew in foreign buyers.

By Ross Kerber

July 29 (Reuters) - U.S. Treasury yields moved back from earlier increases ahead of a Federal Reserve policy statement due on Wednesday afternoon, as a lower U.S. dollar drew in foreign buyers.

The benchmark 10-year US10YT=RR yield was down less than a basis point at 0.579% in morning trading, after reaching as high as 0.594% earlier in the session.

The U.S. dollar =USDfell to a two-year low on Wednesday as pressure built on the Fed to take a dovish policy stance while the COVID-19 pandemic continued to surge. [nL5N2F04SL]

The dollar's performance made the U.S. government bonds more attractive to foreign purchasers and helped drive down yields, said Guy LeBas, chief fixed income strategist for Janney Montgomery Scott LLC. A lower dollar also has a stimulative impact and reduces pressure on the Fed to take further action.

"Right now the dollar is doing the Fed's work for them," LeBas said.

Fed officials are not expected to offer new economic projections or to announce any major policy decisions when they issue a policy statement at 2 p.m. EDT (1800 GMT) or when Fed Chair Jerome Powell speaks at a press conference a half hour later.

But the stakes for the central bank are high as recent data suggests an economic recovery may have stalled and that declining trends in unemployment may have reversed.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, US2US10=RR seen as an indicator of economic expectations, was at 44 basis points, roughly unchanged from Tuesday's close but well off the level of 68 basis points it reached on June 5.

The two-year US2YT=RR U.S. Treasury yield, which typically moves in step with interest rate expectations, was down less than a basis point at 0.1367% in morning trading.

July 29 Wednesday 9:22AM New York / 1322 GMT

Price

Current Yield %

Net Change (bps)

Three-month bills US3MT=RR

0.1075

0.109

0.000

Six-month bills US6MT=RR

0.115

0.117

-0.007

Two-year note US2YT=RR

99-250/256

0.1367

-0.006

Three-year note US3YT=RR

99-230/256

0.1594

-0.006

Five-year note US5YT=RR

99-242/256

0.261

-0.005

Seven-year note US7YT=RR

99-154/256

0.4328

-0.008

10-year note US10YT=RR

100-112/256

0.579

-0.002

20-year bond US20YT=RR

102-24/256

1.008

0.000

30-year bond US30YT=RR

100-168/256

1.2236

0.001

DOLLAR SWAP SPREADS

Last (bps)

Net Change (bps)

U.S. 2-year dollar swap spread

7.50

0.25

U.S. 3-year dollar swap spread

5.75

0.00

U.S. 5-year dollar swap spread

3.50

0.00

U.S. 10-year dollar swap spread

-0.50

0.50

U.S. 30-year dollar swap spread

-40.50

0.50

Sinking dollar lifts all boatshttps://tmsnrt.rs/3g3OwHy

(Reporting by Ross Kerber in Boston; Editing by Steve Orlofsky)

((ross.kerber@thomsonreuters.com; (617) 856 4341; Reuters Messaging: Ross.Kerber.Reuters.com@Reuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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