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TREASURIES-U.S. yield curve flattens as Powell sticks to gradual playbook

* Powell maintains Fed's gradual rate-hike path

* U.S. durable good orders disappoint in January

(Updates market action, adds quote) NEW YORK, Feb 27 (Reuters) - The margin between U.S. shorter- and longer-dated yields narrowed on Tuesday as Federal Reserve Chairman Jerome Powell said the U.S. central bank would stick to a gradual approach on raising interest rates with inflation stuck below its 2 percent goal. Some traders had thought Powell might use his first major appearance before lawmakers as Fed chief to signal a more hawkish stance in the wake of fiscal stimulus and evidence of inflation seemingly picking up. "The (Federal Open Market Committee) will continue to strike a balance between avoiding an overheating economy and bringing ... price inflation to 2 percent on a sustained basis," Powell said in prepared remarks. Bond yields initially rose further following the release of Powell's prepared text on the economy for the House Financial Services Committee, where he was scheduled to testify at 10 a.m. (1500 GMT). They retreated as traders concluded Powell's comments suggested no departure from the Fed's current stance set by his predecessors, Janet Yelln and Ben Bernanke, analysts said. "It's more interesting to see that the market is interpreting the comments as somewhat hawkish, and that's more informative about the trading bias right now than about the Fed's actually likely policy path, said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia. Powell will complete his semiannual testimony before Congress before the Senate Banking Committee on Thursday. At 9:27 a.m. (1426 GMT), the benchmark 10-year Treasury yield was 2.851 percent, down 0.8 basis point from late on Monday, while the two-year yield was 2.222 percent, 0.8 basis point lower on the day. The spread between five-year and 30-year Treasury yields contracted by 1.5 basis points at 52.6 basis points . It remained above the decade low of 40.0 basis points reached on Feb. 1, Tradeweb data showed. The yield curve also flattened on disappointing data on domestic durable goods orders, which fell 3.7 percent in January, more than expected what analysts had forecast. February 27 Tuesday 9:38AM New York / 1438 GMT Price

US T BONDS MAR8 144-15/32 8/32 10YR TNotes MAR8 120-216/256 1/32 Price Current Net Yield % Change

(bps)

Three-month bills 1.645 1.6749 -0.002 Six-month bills 1.8325 1.8753 0.000 Two-year note 100-14/256 2.2219 -0.008 Three-year note 99-166/256 2.3734 -0.003 Five-year note 100-20/256 2.6082 0.003 Seven-year note 99-212/256 2.7772 0.000 10-year note 99-32/256 2.8514 -0.008 30-year bond 97-92/256 3.1365 -0.018 YIELD CURVE Last (bps) Net

Change (bps)

10-year vs 2-year yield 62.80 -0.85 30-year vs 5-year yield 52.80 -1.35

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 29.25 2.25

spread

U.S. 3-year dollar swap 25.75 1.75

spread

U.S. 5-year dollar swap 12.00 1.00

spread

U.S. 10-year dollar swap 1.00 1.00

spread

U.S. 30-year dollar swap -19.00 1.25

spread

(Reporting by Richard Leong; Editing by Jonathan Oatis)