(Recasts, updates yields, adds improved market liquidity)
By Karen Pierog
CHICAGO, April 7 (Reuters) - Yields on longer-term U.S.
Treasuries erased some early gains on Tuesday after a Wall
Street rally sparked by hopes the coronavirus outbreak may be
slowing fizzled out.
The yield on the benchmark U.S. 10-year note was
last up 5.8 basis points at 0.7359%, down from a session high of
0.785%.
After rallying on Monday and being up most of Tuesday, stock
indexes turned negative at the close.
New York Governor Andrew Cuomo said on Tuesday that while
his hard-hit state had its largest single-day increase in
deaths, he believed the number of hospitalizations for the virus
was reaching a plateau.
"We've cheapened up a little bit because of the stronger
push in risk appetite for the last couple of days, taking a bit
of a bid out of Treasuries," said Kim Rupert, senior economist
at Action Economics in San Francisco.
She noted there is also "a ton of supply" coming at the bond
market with Tuesday's auction of $25 billion of 10-year notes,
followed by $17 billion of 30-year bonds on Wednesday, as well
as an "astronomical amount" of debt needed to finance the $2.3
trillion federal CARES Act aimed at mitigating economic fallout
from the virus.
"That's going to keep yields from dropping precipitously,
although there is not a precipitous amount they can drop
anymore," Rupert said.
Results from Tuesday's 10-year note auction were
"underwhelming with a tail of 0.8 basis point and non-dealer
bidding of 72.4% versus a 72.9% average," according to a report
from Ben Jeffery, interest rate strategist at BMO Capital
Markets.
Meanwhile, some measures of liquidity in the $17 trillion
Treasury market are almost back to normal, thanks to the Federal
Reserve's giant purchases, but trading conditions remain
challenging.
A closely watched part of the U.S. Treasury yield curve
measuring the gap between yields on two- and 10-year Treasury
notes that is seen as an indicator of economic
expectations was at 45.8 basis points, about 5.4 basis points
higher than at Monday's close.
The two-year U.S. Treasury yield, which typically
moves in step with interest rate expectations, was at 0.2795%,
up less than a basis point.
Bids submitted in a Tuesday morning overnight repurchase
agreement (repo) operation totaled $1.5 billion backed by
mortgage-backed securities, according to the New York Federal
Reserve, which said it accepted all the bids. In a one-day repo
operation on Tuesday afternoon, all $10.8 billion in bids were
accepted.
April 7 Tuesday 3:27PM New York / 2027 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 0.1625 0.1653 0.031
Six-month bills 0.2 0.2035 0.034
Two-year note 100-50/256 0.2759 0.008
Three-year note 99-168/256 0.3653 0.012
Five-year note 100-26/256 0.4793 0.033
Seven-year note 99-224/256 0.6433 0.055
10-year note 107-64/256 0.7359 0.058
30-year bond 116-188/256 1.3199 0.035
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 24.25 2.25
spread
U.S. 3-year dollar swap 14.75 1.25
spread
U.S. 5-year dollar swap 11.75 0.75
spread
U.S. 10-year dollar swap 5.00 1.25
spread
U.S. 30-year dollar swap -38.00 5.25
spread
(Reporting by Karen Pierog in Chicago Additional reporting by
Ross Kerber in Boston; Editing by Tom Brown and Dan Grebler)
Source: Read Full Article