TREASURIES-Yields steady before Fed meeting statement

·3 min read

(Adds data, 20-year auction results, quote, updates prices) By Karen Brettell NEW YORK, June 15 (Reuters) - U.S. Treasury yields were steady on Tuesday ahead of the conclusion of the Federal Reserve's two-day meeting on Wednesday, which will be watched for any signals on when the U.S. central bank is likely to begin paring its massive bond purchase program. The Fed is not expected to announce a taper until its August Jackson Hole economic symposium, though it may indicate that it has begun discussions about when it is likely to commence. “There are some expectations surrounding the extent to which the Fed will discuss tapering,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets in New York. The lack of clarity in employment data, however, makes it difficult for the Fed to gauge the strength of the economic recovery and move ahead with any plans to tighten policy. Extended unemployment benefits are not due to end for another several months, while childcare issues remain because many schools are still closed to in-person learning until the beginning of the school year, Lyngen noted. That means that “investors’ expectations are generally in a holding pattern until the fall,” he said. Policymakers will also update their economic projections and markets will focus on whether they upgrade their inflation projections and see a rate hike as likely in 2023. Data on Tuesday showed U.S. retail sales dropped more than expected in May, while producer prices jumped by 6.6% year-over-year during the month, the largest gain since November 2010. Benchmark 10-year yields were little changed on the day at 1.499%. They fell to a three-month low of 1.428% on Friday and have dropped from a one-year high of 1.78% in March. Another key focus at this week’s meeting will be whether the Fed raises the interest its pays on excess reserves (IOER) and on reverse repurchase agreements (repo) as money market investors struggle with a lack of high-quality short-term assets. By raising the IOER, the Fed can ease some downward pressure on short-term rates. Borrowing rates in the overnight repurchase agreement market were at one basis point on Tuesday. Some analysts say the Fed is unlikely to make any adjustments unless the fed funds rate falls below 5 basis points, which it has so far held above. The fed funds rate was at 6 basis points on Monday. The Treasury saw strong demand for a $24 billion sale of 20-year bonds on Tuesday. The debt sold at a high yield of 2.12%, more than one basis point below where it had traded before the auction. The bonds were "very well bid," said Kim Rupert, managing director of global fixed income analysis at Action Economics, in a report. She noted that a $3 billion reduction in the auction's size from May likely helped to boost interest. June 15 Tuesday 3:00PM New York / 1900 GMT Price Current Net Yield % Change (bps) Three-month bills 0.025 0.0253 0.000 Six-month bills 0.04 0.0406 0.000 Two-year note 99-235/256 0.167 0.006 Three-year note 99-186/256 0.3418 0.008 Five-year note 99-212/256 0.7854 -0.002 Seven-year note 100-96/256 1.1936 -0.002 10-year note 101-40/256 1.499 -0.002 20-year bond 102-36/256 2.1176 0.001 30-year bond 103-208/256 2.2003 0.010 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 7.75 0.00 spread U.S. 3-year dollar swap 9.75 0.25 spread U.S. 5-year dollar swap 7.00 0.00 spread U.S. 10-year dollar swap -3.00 -0.25 spread U.S. 30-year dollar swap -32.00 -1.25 spread (Reporting by Karen Brettell; Editing by Dan Grebler)

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting