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TREASURIES-Benchmark U.S. yields decline for third straight day

Chuck Mikolajczak
·3 min read

(Adds Fed comments, BNPP outlook) By Chuck Mikolajczak NEW YORK, March 2 (Reuters) - Benchmark U.S. yields dipped on Tuesday for a third straight day after jumping to a one-year high last week, as comments from two Federal Reserve officials failed to spark a move higher while investors look for a pickup in economic data later this week. In prepared comments, Federal Reserve Board Governor Lael Brainard said that while the U.S. economic outlook has markedly improved, the central bank "will need to be patient" before thinking about policy changes. However, Brainard also noted she is "closely watching the bond market" and would be concerned if the rise in yields continued. Federal Reserve Bank of San Francisco President Mary Daly preached patience amid concerns Fed policy could bring about unwanted inflation, arguing that pricing pressures are currently too low and with a large number of Americans still out of work, the Fed must maintain its accommodative stance "for some time." Fed officials in recent days have largely been in sync in their comments that they do not see inflation becoming problematic, after Chair Jerome Powell indicated last week the central bank will remain accommodative until inflation has exceeded 2%. "Back in August they made a major transitional shift in the nature of monetary policy and it wasn’t fully appreciated at the time, and people are slowly coming around to understanding this Fed is really, really focused on this concept of maximum employment because they sense the global deflationary pressures," said Steven Ricchiuto, U.S. chief economist at Mizuho Securities USA LLC in New York. "And they have opted to go the route that the best defense against global deflation is a little more domestic inflation, therefore they are going to allow it to run hot." The yield on 10-year Treasury notes was down 3.6 basis points to 1.410%. The yield is down about 20 basis points since jumping to 1.614% last week in the wake of a poor 7-year auction and as expectations increased that the economy was improving, sparking inflation concerns. Investors will also have a raft of economic data to digest shortly, with reports on the labor market in each of the next three days, culminating in Friday's payrolls report for February. Also expected is a report on the health of the services sector for February and January factory orders. Stronger than anticipated data could once again fuel inflation worries, which could lead to another test of the 1.50% level on the 10-year. "An economic recovery super-charged by faster vaccination and fiscal stimulus does increase the likelihood of an accelerated schedule for both asset purchases and rate hikes," said BNP Paribas analysts in a note on Tuesday. "But at present, the Fed will likely reiterate that it is too early to declare victory and that it would communicate any potential moves with plenty of advance warning." The yield on 30-year Treasury bond was down 1.2 basis points to 2.209%. March 2 Tuesday 2:59PM New York / 1959 GMT Price US T BONDS JUN1 159-18/32 0-12/32 10YR TNotes JUN1 133-148/256 0-100/25 6 Price Current Net Yield % Change (bps) Three-month bills 0.04 0.0406 0.000 Six-month bills 0.06 0.0609 0.000 Two-year note 100-2/256 0.1211 -0.002 Three-year note 99-160/256 0.2524 -0.016 Five-year note 99-40/256 0.6721 -0.039 Seven-year note 100-82/256 1.0773 -0.046 10-year note 97-92/256 1.4102 -0.036 30-year bond 92-180/256 2.2093 -0.012 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 9.75 -0.25 spread U.S. 3-year dollar swap 12.00 0.00 spread U.S. 5-year dollar swap 11.50 0.25 spread U.S. 10-year dollar swap 6.50 -0.75 spread U.S. 30-year dollar swap -26.75 -0.50 spread (Reporting by Chuck Mikolajczak Editing by Mark Heinrich and Sonya Hepinstall)