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U.S. yields inch higher in rangebound trading; Fed in focus

Credit: REUTERS/Gary Cameron

U.S. Treasury yields edged higher on Thursday after trading lower for much of the session, as investors consolidated positions ahead of next week's Federal Reserve monetary policy meeting that is expected to result in an interest rate cut for a third time this year.

By Gertrude Chavez-Dreyfuss

NEW YORK, Oct 24 (Reuters) - U.S. Treasury yields edged higher on Thursday after trading lower for much of the session, as investors consolidated positions ahead of next week's Federal Reserve monetary policy meeting that is expected to result in an interest rate cut for a third time this year.

U.S. 10-year and two-year note yields also hit key technical resistance that thinned buying, analysts said.

The trend so far this week has been to buy Treasuries and push yields lower amid increasing economic, political, and global uncertainty.

Issues surrounding Britain's exit from the European Union, the impeachment inquiry into U.S. President Donald Trump and mounting evidence of U.S. economic weakness have dampened Treasury yields.

Analysts noted that even the one bright spot, Washington's "phase 1" deal with Beijing on trade matters, has yet to be put to paper.

That said, Kim Rupert, managing director of global fixed income at Action Economics in San Francisco, said things are not dire as some market participants believe.

"A Fed cut is priced in next week, but the market seems to be getting cold feet on further easing down the road," Rupert said. "The economy doesn't look that bad. There are chances of a U.S.-China trade deal and Brexit may be resolved, so a lot of the risks have diminished."

Recent U.S. economic numbers have been mixed, suggesting some weakening in the economy, but not a recession.

Thursday's data showed new orders for key U.S.-made capital goods fell more than expected in September and shipments declined, while sales of new U.S. single-family homes also slid in September.

But U.S. initial jobless claims were better than expected.

In afternoon trading, U.S. 10-year note yields US10YT=RRrose to 1.771% from 1.759% late on Wednesday.

Yields on 30-year bonds US30YT=RRwere up at 2.267%, from 2.251% on Wednesday.

On the short-end of the curve, U.S. two-year yields edged up to 1.587% US2YT=RR, from Wednesday's 1.582%.

On Thursday, the U.S. Treasury's auction of $32 billion in seven-year notes, the final coupon supply for October,showed decent demand, after two strong sales of two-year and five-year notes this week.

The seven-year note picked up a high yield of 1.657%, much lower than the expected rate at the bid deadline. There were $78.6 billion in bids, resulting in a 2.46 bid-to-cover ratio, a gauge of demand, which slightly lower from September's 2.49 cover but modestly above the 2.44 average.

"Though rates remain historically rich, they are nevertheless palatable, considering the likelihood of a Fed easing next week, along with lingering growth worries, and expectations for ongoing accommodation from most major central banks that should limit upside pressures," Action Economics said in its blog after the seven-year note auction.

October 24 Thursday 3:59PM New York / 1959 GMT

Price

Current Yield %

Net Change (bps)

Three-month bills US3MT=RR

1.6425

1.6768

0.018

Six-month bills US6MT=RR

1.62

1.6605

0.016

Two-year note US2YT=RR

99-214/256

1.5837

0.002

Three-year note US3YT=RR

99-102/256

1.5829

0.003

Five-year note US5YT=RR

99-148/256

1.5881

0.007

Seven-year note US7YT=RR

99-168/256

1.6777

0.008

10-year note US10YT=RR

98-180/256

1.7695

0.011

30-year bond US30YT=RR

99-176/256

2.2644

0.013

DOLLAR SWAP SPREADS

Last (bps)

Net Change (bps)

U.S. 2-year dollar swap spread

3.00

-0.25

U.S. 3-year dollar swap spread

-1.00

0.00

U.S. 5-year dollar swap spread

-2.25

0.00

U.S. 10-year dollar swap spread

-8.00

0.00

U.S. 30-year dollar swap spread

-38.25

-0.25

(Reporting by Gertrude Chavez-Dreyfuss; Editing by David Gregorio and Tom Brown)

((gertrude.chavez@thomsonreuters.com; 646-223-6322; Reuters Messaging: gertrude.chavez.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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