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TREASURIES-Treasury yields jump as Fed aids commercial paper market

By Karen Pierog

(Updates yields) By Karen Pierog March 17 - The benchmark U.S. 10-year Treasury note yield climbed back over the 1% level on Tuesday as a modicum of renewed confidence shored up Wall Street and reduced demand for safe government debt after the Federal Reserve announced plans to rescue the stressed commercial paper market. The yield on the 10-year note rose to 1.067%, from 0.728% at Monday's close, its highest since March 3, as risk appetite improved after the Fed said it will relaunch financial crisis-era purchases of short-term corporate debt to thaw credit markets strained by the coronavirus pandemic. "Fiscal stimulus is coming and the Fed is now supporting the corporate market with CP. And we don't think either the Treasury, White House or Fed is done yet. ... We will see if the equity markets starts looking ahead," Andrew Brenner, head of international fixed income at National Alliance Securities, wrote in an email to clients. Investors are hoping that the Fed's moves will ease a credit crunch and lubricate financial markets, and that helped boost stocks a day after they recorded their biggest tumble since the crash of 1987. On Sunday, the central bank cut interest rates to near zero and launched a $700 billion quantitative easing program to buy Treasuries and mortgage backed securities in an effort to stimulate the U.S. economy and ensure liquidity in financial markets. "There's some confidence here that the end of the world will not happen, at least not this year," said Stan Shipley, fixed income strategist at Evercore ISI in New York. "It seems to us that the monetary authorities moved very quickly to do what they could." Yields on 30-year bonds were last at 1.679%, up from Monday's close of 1.324%, and two-year Treasury note yields were trading at 0.494%, up from 0.36% late on Monday. Gennadiy Goldberg, senior U.S. rates strategist at TD Securities in New York, said liquidity problems have not yet been resolved even though the Fed has stepped in to buy Treasuries. "You're starting to see more orderly price action, but it's extremely touch and go," he said. Both the three-month/10-year Treasury yield curve and the 2s/10s steepened sharply, the latter spread reaching its widest since May 2018 at around 54 basis points. Meanwhile, the New York Federal Reserve offered an additional up to $500 billion in overnight loans on Tuesday afternoon, but only $10.1 billion in repurchase agreements or repo bids were submitted and accepted. It also said it will make up to $1 trillion a day available for loans in the repo market for the remainder of this week. The moves marked further efforts by the central bank to provide more liquidity to money markets during a period of high volatility related to the coronavirus. In an earlier overnight repo operation on Tuesday, the NY Fed accepted $142.65 billion in bids submitted out of a possible $500 billion. March 17 Tuesday 3:25PM New York / 2025 GMT Price Current Net Yield % Change (bps) Three-month bills 0.1975 0.2009 -0.060 Six-month bills 0.265 0.269 -0.018 Two-year note 101-57/256 0.4945 0.134 Three-year note 99-170/256 0.6135 0.176 Five-year note 101-234/256 0.7306 0.239 Seven-year note 101-2/256 0.9747 0.303 10-year note 104-16/256 1.067 0.339 30-year bond 107-136/256 1.6787 0.355 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 5.75 -2.00 spread U.S. 3-year dollar swap 0.75 -4.00 spread U.S. 5-year dollar swap 5.25 -5.25 spread U.S. 10-year dollar swap -8.75 -10.25 spread U.S. 30-year dollar swap -67.50 -11.75 spread (Reporting by Kate Duguid in New York and Karen Pierog in Chicago; ; Editing by Alden Bentley Editing by Nick Zieminski and Will Dunham)