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TREASURIES-Yields move off session low as stocks stabilize

Chuck Mikolajczak
·3 mins read

(Updates with Powell comments, 2-year auction results) By Chuck Mikolajczak Sept 22 (Reuters) - U.S. Treasury yields moved off earlier lows on Tuesday, as equities found their footing after a four-session drop and after comments from U.S. Federal Reserve Chair Jerome Powell before the House Financial Services Committee. Yields on the 10-year U.S. Treasury note have drifted lower the last several sessions as stocks have come under pressure, with the S&P 500 down 3.5% over the previous four sessions on concerns about rising coronavirus cases potentially leading to fresh lockdowns, election uncertainty and Washington gridlock stalling a new round of pandemic relief. With equities under pressure, investors often move into defensive plays such as Treasuries, driving rates lower. Still, the yield on the 10-year remained within the 6-basis-point range it has held since the Fed's most recent policy statement on Sept. 16. "Overall, we are seeing fixed income markets exude a great deal of calmness and a calm approach in contrast to what we are seeing in equities," said Bill Merz, head of fixed income research at U.S. Bank Wealth Management in Minneapolis. "That is during a time when equity markets have experienced significant volatility, significant downside, and 10-year yields have done virtually nothing." The yield on 10-year Treasury notes was down 0.2 basis points at 0.669 percent. Powell said the central bank should not be used to funnel aid for small businesses in need as a result of the coronavirus pandemic, and Treasury Secretary Steven Mnuchin said he was willing for the Fed to loosen the standards of the Main Street program and allow loans as small as $100,000. Treasuries had little reaction to economic data which showed U.S. home sales surged to their highest level in nearly 14 years in August, as the housing market remains a strength of the economy. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was down 0.2 basis points at 0.135 percent. Results from an early afternoon auction of $52 billion of two-year notes showed soft demand, with primary dealers accounting for 33.4% of accepted bids, compared to an average of 32.3%, according to a note from BMO Capital Markets rates strategist Ben Jeffery. A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at 53.2 basis points, rebounding from a two-week low of 51.2 hit on Monday. September 22 Tuesday 2:22PM New York / 1822 GMT Price US T BONDS DEC0 176-18/32 0-1/32 10YR TNotes DEC0 139-152/256 0-8/256 Price Current Net Yield % Change (bps) Three-month bills 0.0975 0.0989 -0.005 Six-month bills 0.1075 0.1091 0.000 Two-year note 99-251/256 0.1351 -0.002 Three-year note 99-236/256 0.1513 -0.006 Five-year note 99-240/256 0.2627 -0.005 Seven-year note 100-86/256 0.4508 -0.003 10-year note 99-148/256 0.6691 -0.002 20-year bond 98-148/256 1.2056 -0.002 30-year bond 98-220/256 1.422 -0.004 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 8.00 0.25 spread U.S. 3-year dollar swap 7.25 0.25 spread U.S. 5-year dollar swap 6.00 0.00 spread U.S. 10-year dollar swap 0.75 0.25 spread U.S. 30-year dollar swap -36.25 0.50 spread (Reporting by Chuck Mikolajczak; editing by Jonathan Oatis and Sonya Hepinstall)