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TREASURIES-U.S. bond yields edge up on solid data as Fed meets

Richard Leong

* Traders widely expect Fed to cut U.S. rates on Wednesday

* U.S. consumer confidence rebounds to hit 8-month peak in July

(Updates market action, adds quotes) NEW YORK, July 30 (Reuters) - U.S. Treasury yields edged up on Tuesday on encouraging data as Federal Reserve policy-makers began meeting on whether to lower key lending rates for the first time in a decade to prolong the longest-ever U.S. economic expansion. Traders awaited signals on whether the U.S. central bank after a two-day meeting will deliver an insurance rate-cut to combat risks from ongoing trade tensions or is prepared to lower borrowing costs a number of times to avert a recession. "The market is treading water until we get clarification from the Fed on what it's going to do," said Sean Simko, head of global fixed income management at SEI Investments Co. U.S. interest rates futures suggested traders are fully positioned for a rate cut on Wednesday with an expected 78% chance of a quarter-point decrease and a 22% probability of a half-point reduction, according to CME Group's FedWatch program.

Federal funds contracts implied traders expect at least one more quarter-point cut by year-end if the Fed lowers rates Wednesday. "They don't want to disappoint the market," said Nick Maroutsos, co-head of global bonds at Janus Henderson. He added the Fed needs to signal another rate cut is coming, or risk roiling stock and bond prices. "They are completely at the mercy of the markets," he said. The Fed will release its rate decision at 2 p.m. (1800 GMT) on Wednesday, followed by a press conference with Fed Chairman Jerome Powell half an hour later. In late U.S. trading, the yield on benchmark 10-year government notes was up 1 basis point at 2.063%, bouncing within a 3.5 basis-point trading range. The benchmark 10-year yield has risen over 6 basis points this month after hitting 1.939% on July 3, which was its lowest level since November 2016. On the data front, the Commerce Department said U.S. consumer spending rose 0.3% in June, matching analyst forecasts and allaying some worries about a sharp deceleration in economic growth. While core consumer prices grew last month, the year-over-year increase as measured by the core rate of personal consumer expenditure remained subdued at 1.6%, below the Fed's 2% goal. The Conference Board said its index on U.S. consumer confidence rose to 135.7 in July, an eight-month high. It recovered from last month's drop that pushed the gauge to a 21-month low due to the trade conflict between China and the United States. Tuesday, July 30, at 1443 EDT (1843 GMT): Price

US T BONDS SEP9 154-21/32 -4/3210YR TNotes SEP9 127-84/256 -4/32Price Current NetYield % Change

(bps)

Three-month bills 2.05 2.0951 -0.013Six-month bills 2.0325 2.0822 -0.006Two-year note 99-204/256 1.8539 0.004Three-year note 99-204/256 1.8208 0.011Five-year note 99-138/256 1.8469 0.013Seven-year note 99-140/256 1.9445 0.01510-year note 102-192/256 2.0632 0.00830-year bond 106 2.5848 0.002YIELD CURVE Last (bps) Net

Change (bps)

10-year vs 2-year yield 20.70 0.5030-year vs 5-year yield 73.70 -0.45

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 2.75 0.50

spread

U.S. 3-year dollar swap -0.50 -0.25

spread

U.S. 5-year dollar swap -3.50 -0.25

spread

U.S. 10-year dollar swap -8.75 -0.50

spread

U.S. 30-year dollar swap -37.50 -0.25

spread

(Reporting by Richard Leong; Editing by Bernadette Baum and Tom Brown)