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TREASURIES-Prices drop as investors cash in on 2-day rally

Gertrude Chavez-Dreyfuss

* 2-year yields post largest rise since April

* July cut not certain; U.S. economy solid -analyst

* U.S. existing home sales rise

(New throughout, updates market activity) NEW YORK, June 21 (Reuters) - U.S. Treasury prices fell sharply on Friday, as investors cashed in on steep gains the last two days that saw yields drop to multi-year lows in the wake of a Federal Reserve statement that flagged interest rate cuts this year. The price rally on Thursday pushed U.S. benchmark 10-year Treasury yields below 2% for the first time in more than 2-1/2 years, while 30-year yields hit their lowest since October 2016. Yields on U.S. 2-year notes slid to their lowest since mid-November 2017. A few analysts believe the rally that followed the Fed's decision and statement on Wednesday was overdone and now the market is ratcheting back forecasts of three to four rate cuts given that the U.S. economy, while slowing, remained solid overall. Scott Anderson, chief economist, at Bank of the West in San Francisco, said even though President Donald Trump has been pressuring the Fed to cut interest rates, economic arguments for "panicked rate cuts" as soon as next month are thin right now. "Unless something goes seriously off the rails with the U.S. economy over the next 30 days ... the case for aggressive rate cuts will be just as dubious as it is now," he said. Still, the market remained positioned for lower rates going forward. The Fed on Wednesday set the stage for interest rate cuts starting next month, saying it was ready to counter growing global and domestic economic risks amid rising trade tensions and weak inflation. Yet Fed officials still projected the targeted overnight lending rate to remain in a range of 2.25% to 2.50% this year. In afternoon trading, U.S. 10-year note yields rose to 2.064% from 2.0% late on Thursday. Yields on U.S. 30-year bonds advanced to 2.591%, from 2.527% on Thursday. At the short end of the curve, U.S. 2-year yields were up at 1.778%, from Thursday's 1.728%. Treasury supply is a big focus next week, with debt managers selling $113 billion in U.S. 2-year, 5-year, and 7-year notes, including $18 billion in 2-year floating rate notes. Yields showed little reaction overall to upbeat data on U.S. existing home sales. U.S. 10-year and 30-year yields hit session highs shortly before the release of the housing data, and pared gains after. U.S. existing home sales expanded 2.5% to a seasonally-adjusted annual rate of 5.34 million units last month.

Friday, June 21 at 1507 EDT (1907 GMT):

Price Current NetYield % Change


Three-month bills 2.065 2.1099 -0.026Six-month bills 1.9975 2.051 0.010Two-year note 100-167/256 1.7802 0.052Three-year note 100-10/256 1.7364 0.056Five-year note 100-236/256 1.8038 0.066Seven-year note 101-68/256 1.929 0.06710-year note 102-192/256 2.0661 0.06530-year bond 105-220/256 2.592 0.065


Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 1.50 -1.25


U.S. 3-year dollar swap 0.50 -1.00


U.S. 5-year dollar swap -2.50 -0.50


U.S. 10-year dollar swap -7.00 -0.25


U.S. 30-year dollar swap -34.00 -0.75


(Reporting by Gertrude Chavez-Dreyfuss; editing by Jonathan Oatis and David Gregorio)