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TREASURIES-U.S. yields modestly higher as investors look to next week's FOMC

Gertrude Chavez-Dreyfuss

NEW YORK, Oct 25 (Reuters) - U.S. Treasury yields were flat to slightly higher on Friday, in generally rangebound trading, with investors not really looking to push yields in either direction ahead of next week's Federal Reserve monetary policy meeting. The U.S. economic calendar is thin on Friday so market participants will be focused not only the Fed, but also U.S-China trade negotiations related to increasing purchases of U.S. agricultural products, as well as news on Britain's exit from the European Union. "Realized volatility in the last two weeks has been very compressed and seems to have bled out all the bearish momentum leading into the month of October," said Guy LeBas, chief fixed income strategist, at Janney Montgomery Scott in Philadelphia. "I think we would need significant catalysts such as next week's FOMC (Federal Open Market Committee) meeting to break out of this range," he added. The Fed is widely expected cut interest rates by 25 basis points next week. In morning trading, U.S. 10-year note yields edged up to 1.774% from 1.766% late on Thursday. Yields on 30-year bonds were little changed at 2.257%, from 2.259% on Thursday. On the short-end of the curve, U.S. two-year yields rose to 1.597%, from Thursday's 1.582%. While next week's expected rate cut has been priced in, Fed's next moves are still up in the air. Some analysts expect the Fed to do a "hawkish cut," which is for insurance purposes and not because the U.S. economy desperately needs it. Janney's LeBas thinks the Fed is going to do a "neutral cut." "The Fed statement is going to have much indication of forward looking actions or beyond. Right now, there's only a 1 in 5 chance of a December cut, assuming of course an October cut," said LeBas. He believes the ratio should be more like 50-50, which should have the potential to spur a 10 basis-point rally throughout the curve. On Friday, top U.S. and Chinese trade officials will discuss plans for China to buy more U.S. farm products, but in return, Beijing will request cancellation of some planned and existing U.S. tariffs on Chinese imports.

October 25 Friday 10:41AM New York / 1441 GMT

Price Current NetYield % Change

(bps)

Three-month bills 1.635 1.6688 -0.005Six-month bills 1.6175 1.6577 0.000Two-year note 99-208/256 1.5956 0.014Three-year note 99-96/256 1.5916 0.009Five-year note 99-142/256 1.593 0.008Seven-year note 99-168/256 1.6772 0.00110-year note 98-192/256 1.7644 -0.00230-year bond 99-236/256 2.2535 -0.006

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 2.50 -0.75

spread

U.S. 3-year dollar swap -1.50 -0.50

spread

U.S. 5-year dollar swap -3.00 -1.00

spread

U.S. 10-year dollar swap -8.75 -0.75

spread

U.S. 30-year dollar swap -38.75 -0.75

spread

(Reporting by Gertrude Chavez-Dreyfuss Editing by Alistair Bell)