U.S. Markets close in 3 hrs 45 mins

TREASURIES-Yields rise after Powell says U.S. economy is resilient

By Kate Duguid

(New throughout)

By Kate Duguid

NEW YORK, Feb 11 (Reuters) - U.S. Treasury yields rose on Tuesday after Federal Reserve Chair Jay Powell said the U.S. economy is resilient and maintained that current interest rate policy remains appropriate.

In his twice-a-year update to Congress, Powell said that through the second half of 2019 "the economy appeared resilient to the global headwinds that had intensified last summer," as economic activity increased further and the labor market strengthened.

Yields were higher on Tuesday, without signaling any change in expectations of an adjustment to interest rate policy.

Powell signaled that he sees no reason to adjust U.S. interest rates unless new developments cause a "material reassessment" to the current outlook. However, he added: "We are closely monitoring the emergence of the coronavirus, which could lead to disruptions in China that spill over to the rest of the global economy."

The message was: "The economy is in a good place, policy is tuned for the economic base case, but risks are tilted a bit to the downside," said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott.

The 10-year yield was last up 3.8 basis points at 1.585%, on track to record its first positive day since Feb. 5. The two-year yield was up 3.6 basis points at 1.413% and the 30-year bond yield was up 3.1 basis points at 2.052%.

Yields across maturities have fallen in 2020 as investors nervous about the economic fallout of the coronavirus epidemic have continued to bolster demand for safe-haven assets. The 10-year yield has fallen by 16.92% since Dec. 31.

After weekend headlines showed that the death toll from the coronavirus had surpassed that of the 2002/2003 Severe Acute Respiratory Syndrome (SARS) epidemic, strong risk-off demand on Monday inverted one measure of the yield curve.

The spread between yields of three-month and 10-year Treasuries remained inverted on Tuesday at minus 0.98 basis point. The spread was below zero for several days last week.

Also on Tuesday, the Treasury Department auctioned off $38 billion in new three-year notes to fair demand. The Treasury will auction $27 billion in 10-year notes on Wednesday and $19 billion in 30-year bonds on Thursday.

"Longer duration is going to be a bit harder to swallow. The 30-year is hovering near recent low yields and the long bond is very sensitive to supply considerations. In addition, we might see a little bit of backing off at the auction as real money participants - namely insurers - hold a bit of powder for the 20-year issuance," said Janney Montgomery Scott's LeBas. (Reporting by Kate Duguid Editing by Alistair Bell and Jonathan Oatis)