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TREASURIES-U.S. yields slide after Fed signals rate cuts this year

Gertrude Chavez-Dreyfuss

* Fed holds rates steady, but signals cuts this year

* U.S. yields fall across the board

* U.S. 2-year yields lowest since December 2017

* Fed doesn't signal July rate cut, could delay to Sept - analyst

(Adds analyst comment, details, updates prices) NEW YORK, June 19 (Reuters) - U.S. Treasury yields retreated on Wednesday after the Federal Reserve held interest rates steady, as expected, but flagged possible rate cuts of as much as half a percentage point later this year as inflation remained below its target. U.S. yields hit session lows after the Fed decision, with those on two-year notes hitting their lowest since early December 2017, after trading higher all day. The U.S. central bank said it "will act as appropriate to sustain" the economic expansion as it approaches the 10-year mark and dropped a promise to be "patient" in adjusting rates. Nearly half its policymakers now show a willingness to lower borrowing costs over the next six months. Chris Cordaro, chief investment officer at RegentAtlantic in New York, said the Fed was justified in not cutting interest rates on Wednesday. "We're still running at really low unemployment rates," Cordaro said. "The economy is starting to slow but it's not coming anywhere close to potentially dipping into a recession. It would be premature today to cut rates and even maybe in July." Seven of 17 policymakers said they expected it would be appropriate to cut rates by half a percentage point by the end of 2019, and an eighth saw a rate cut of a quarter point as appropriate. Fed officials, though, still projected the targeted overnight lending rate to remain in a range of 2.25% to 2.50% for the rest of this year. "The modest downward revisions to the interest rate projections are likely to come as a disappointment to markets, which were pricing in a much bigger monetary loosening," said Paul Ashworth, chief U.S. economist at Capital Economics. The Fed statement, he added, fell well short of signaling a rate cut is coming in July, and could very well delay the move until September. In a question-and-answer forum, Fed Chairman Jerome Powell said he intends to fully serve his four-year term, after being asked about the possibility of being demoted by U.S. President Donald Trump. In afternoon trading, U.S. 10-year note yields fell to 2.031% from 2.058% late on Tuesday. Yields on U.S. 30-year bonds dropped to 2.54%, from 2.552% on Tuesday. At the short end of the curve, U.S. 2-year yields slid to 1.753%, the lowest in about 1-1/2 years, from Tuesday's 1.862% . They were last at 1.755%.

Wednesday, June 19, at 1510 EDT (1910 GMT):

Price Current NetYield % Change

(bps)

Three-month bills 2.1325 2.1798 -0.046Six-month bills 2.07 2.1268 -0.070Two-year note 100-173/256 1.7698 -0.092Three-year note 100-26/256 1.7149 -0.084Five-year note 101-16/256 1.7745 -0.056Seven-year note 101-120/256 1.8982 -0.03510-year note 103-12/256 2.0336 -0.02430-year bond 106-232/256 2.5437 -0.008

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 2.25 -0.50

spread

U.S. 3-year dollar swap 1.75 -0.25

spread

U.S. 5-year dollar swap -1.50 0.00

spread

U.S. 10-year dollar swap -6.75 -0.50

spread

U.S. 30-year dollar swap -32.75 -0.50

spread

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by David Randall; Editing by Nick Zieminski and James Dalgleish)