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TREASURIES-U.S. yields fall as markets await Fed decision

Gertrude Chavez-Dreyfuss

NEW YORK, July 29 (Reuters) - U.S. Treasury yields were lower across the board on Monday, in line with falls around the world amid global economic uncertainty, as investors await a widely expected interest rate cut by the Federal Reserve this week. The Fed begins its two-day monetary policy meeting on Tuesday, with a 25-basis-point cut fully priced in. "People say the Fed could go 50 basis points, but I think that's not going to happen," said Stan Shipley, fixed income strategist at Evercore ISI in New York. "The question is what they are going to say about future cuts." U.S. Treasuries also tracked core euro zone government bond yields, which traded just above record lows hit last week after the European Central Bank last Thursday flagged another round of easing. Mounting concerns for a "no deal" Brexit and general growth worries are increasing the odds for decisive action from the European Central Bank. Treasuries also moved with UK 10-year yields, which dropped to the lowest in almost three years. In morning trading, U.S. 10-year note yields fell to 2.056% , from 2.081% late on Friday. Yields on 30-year bonds slid to 2.583%, from 2.601% on Friday. At the short end of the curve, two-year yields slipped to 1.843%, from Friday's 1.87%. With a Fed cut factored in, investors will focus on the Fed's statement, which should hint at its guidance on future cuts. "Offering forward guidance to indicate there will be additional accommodation is precisely the tact (Fed Chair Jerome) Powell will need to employ to offset the risk of a post-cut disappointment downtrade," BMO Capital Markets said in a research note. "His success in crafting the message effectively without over-committing remains to be seen." Aside from the Fed decision, this week is heavy in terms of economic data, headlined by Thursday's U.S. manufacturing report and Friday's non-farm payrolls report. Analysts said the U.S. economy seems to be on a more solid footing than the rest of the world, but global sentiment has been tainted nonetheless. "Globally, business sentiment is falling. The labor market looks fine in the U.S., consumer spending is fine, but people are getting worried about business sentiment and manufacturing," said Evercore's Shipley. "It's not just a U.S. thing, it's global."

July 29 Monday 10:11AM New York / 1411 GMT

Price Current NetYield % Change

(bps)

Three-month bills 2.0775 2.1227 0.005Six-month bills 2.045 2.1002 -0.003Two-year note 99-209/256 1.8439 -0.026Three-year note 99-214/256 1.8071 -0.027Five-year note 99-156/256 1.8321 -0.030Seven-year note 99-166/256 1.9289 -0.03010-year note 102-208/256 2.0563 -0.02530-year bond 106-8/256 2.5834 -0.018

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 3.25 0.25

spread

U.S. 3-year dollar swap 0.50 0.50

spread

U.S. 5-year dollar swap -2.50 0.75

spread

U.S. 10-year dollar swap -7.75 0.00

spread

U.S. 30-year dollar swap -36.75 -0.50

spread

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Dan Grebler)