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TREASURIES-Yields rise as Fed expands corporate bond purchases, boosting risk appetite

Karen Brettell

(Recasts with price move, adds quote, updates prices) By Karen Brettell NEW YORK, June 15 (Reuters) - U.S. Treasury yields rose on Monday as stocks recovered from earlier losses and after the Federal Reserve said it would expand its purchases of corporate bonds, boosting risk appetite. The Fed said it would buy corporate bonds in the secondary market, aiming to create a portfolio that is based on a broad, diversified market index. “The price action in the Treasury market reflects the Fed’s willingness to continue to expand its balance sheet to the benefit of spurring economic growth,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets in New York. Benchmark 10-year note yields gained one basis point to 0.708%. They have fallen from an 11-week high of 0.959% on June 5, when data showed that employers unexpected added jobs in May. Yields had fallen earlier on Monday as stocks swooned on renewed concerns over the spread of the coronavirus. Beijing saw an unexpected spike in cases, while new cases and hospitalizations swept through more U.S. states, including Florida and Texas. The Fed last week signaled it plans years of extraordinary support for the economy with policymakers projecting the economy to shrink 6.5% in 2020 and the unemployment rate to be 9.3% at year's end. Fed Chair Jerome Powell is expected to repeat this message when he testifies before Congress on Tuesday and Wednesday. The yield curve between two-year and 10-year notes steepened one basis point on the day to 52 basis points. The curve between 10-year notes and 30-year bonds flattened one basis point to 74 basis points and is down from 83 basis points on June 5, the steepest since March. NatWest Markets sees the curve between 10-year notes and 30-year notes as likely to resteepen as the Treasury increases the supply of long-dated debt. “We thought the Fed might want to make a stronger commitment to making it clear that they would make purchases in the long end of the curve, and we didn’t get that,” said John Roberts, an interest rate strategist at NatWest. The Fed said it would keep the size of its bond purchase program unchanged, but did not detail where it would focus the purchases. The Treasury will sell $17 billion in 20-year bonds on Wednesday. June 15 Monday 3:45PM New York / 1945 GMT Price US T BONDS SEP0 177-5/32 -0-1/32 10YR TNotes SEP0 138-172/256 -0-16/25 6 Price Current Net Yield % Change (bps) Three-month bills 0.165 0.1678 0.003 Six-month bills 0.185 0.1877 0.003 Two-year note 99-224/256 0.189 -0.002 Three-year note 100-20/256 0.2238 0.003 Five-year note 99-152/256 0.3327 0.007 Seven-year note 99-184/256 0.5412 0.007 10-year note 99-52/256 0.7084 0.009 20-year bond 98-4/256 1.2377 0.006 30-year bond 95-16/256 1.4541 0.007 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 7.00 -0.25 spread U.S. 3-year dollar swap 4.75 0.00 spread U.S. 5-year dollar swap 4.50 0.00 spread U.S. 10-year dollar swap -1.50 -0.25 spread U.S. 30-year dollar swap -49.00 -0.50 spread (Reporting by Karen Brettell; editing by Nick Zieminski and Jonathan Oatis)