TREASURIES-Benchmark yield dips after Fed's Powell says economy still needs support

Ross Kerber
·3 min read

(Adds TIPS close) By Ross Kerber Feb 23 (Reuters) - The benchmark 10-year U.S. Treasury yield fell on Tuesday after Federal Reserve Chairman Jerome Powell said the economy still needed central bank support. The 10-year note was down 1.4 basis point at 1.3551% in afternoon trading. It touched a high of 1.389% early Tuesday before Powell testified at a U.S. Senate Banking Committee hearing in Washington. Powell said interest rates would remain low and the Fed's bond purchases would continue "at least at the current pace until we make substantial further progress towards our goals ... which we have not really been making." Analysts said the market's move showed that Powell's remarks reinforced status quo expectations, that the Fed remains dovish despite some inflation concerns. "His basic stance was the same and it provided some reassurance to the bond market," said Julia Coronado, president of analysis firm Macropolicy Perspectives. "In Powell's even-keeled way he said, 'Our job is far from over. We're going to be here buying Treasuries for some time.'" Expectations of a consumer price uptick have significantly boosted yields on longer-term U.S. debt since the summer. Shortly before Powell's testimony, the 30-year bond yield hit 2.34%, the highest since early January 2020. It was still up 1.3 basis points at 2.1927% on Tuesday afternoon, reflecting investors' longer-term inflation expectations. A $60 billion U.S. Treasury auction of 2-year notes was "uneventful" according to a note from BMO Capital Markets rates strategist Ben Jeffery. It had a high yield of 0.119%, the lowest on record, and a bid-to-cover ratio of 2.44 versus an average of 2.57. The Nasdaq composite index fell in volatile trading as investors sold off mega-cap growth stocks on valuation concerns. 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 124 basis points, about a basis point below Monday's close. The yield on the 30-year Treasury Inflation Protected Securities inched further into positive territory before Powell spoke, reaching 0.093%, its highest since June, before settling to 0.061%, down sightly from late Monday. But in 10-year TIPS, real rates went more deeply negative to -0.827%. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was little changed at 0.1169%. February 23 Tuesday 1:42PM New York / 1842 GMT Price Current Net Yield % Change (bps) Three-month bills 0.0325 0.033 0.000 Six-month bills 0.05 0.0507 0.003 Two-year note 100-4/256 0.1169 0.002 Three-year note 99-184/256 0.2199 -0.005 Five-year note 99-2/256 0.5793 -0.018 Seven-year note 98-116/256 0.9813 -0.014 10-year note 97-220/256 1.3551 -0.014 20-year bond 97-144/256 2.024 0.005 30-year bond 93-12/256 2.1927 0.013 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 9.00 0.00 spread U.S. 3-year dollar swap 10.50 -0.25 spread U.S. 5-year dollar swap 13.00 0.00 spread U.S. 10-year dollar swap 8.00 -0.25 spread U.S. 30-year dollar swap -24.75 -1.25 spread (Reporting by Ross Kerber in Boston; additional reporting and editing by Alden Bentley; editing by Richard Chang and David Gregorio)