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TREASURIES-U.S. Treasury yields rise as Fed adds liquidity

Karen Pierog

(Recasts, updates yields, adds New York Fed announcement, analyst comment) CHICAGO, March 12 - Longer-dated U.S. Treasury yields rose on Thursday after the New York Federal Reserve took dramatic steps to boost liquidity in the banking system, in an attempt to address liquidity concerns in the Treasury market. The 10-year note yield was last at 0.882%, up from 0.822% at Wednesday's close. The New York Fed went into overdrive to address market conditions. After raising repurchase agreement (repo) operation limits twice since Monday, it announced on Thursday $1.5 trillion in new repo operations for this week. The moves are a sign the Fed is turning to drastic measures as markets show signs of stress. Priya Misra, head of global rates strategy at TD Securities in New York, called the bigger repos, coupled with the Fed's expansion to a range of maturities for its $60 billion reserve management purchases launched initially for short-term bills, "significant." "It looks like QE (quantitative easing), it is QE," she said. Even more is expected from the Fed following its surprise 50-basis-point rate cut last week. "Bottom line, the Fed's cutting to zero at some point in the next two meetings," said John Herrmann, a rates strategist at MUFG Securities in New York. Yields had fallen earlier on Thursday as stocks plummeted. "We're back to basic panic flight to quality, flight to safety again," said Kim Rupert, senior economist at Action Economics in San Francisco. Thirty-year Treasury yields were at 1.481%, up from 1.315% at Wednesday's close. Two-year Treasury yields were trading at 0.497%. The market largely shrugged off an unexpected fall in jobless claims last week and a drop in producer prices in February, as well as results from the U.S. Treasury's auction of $16 billion of 30-year bonds.

March 12 Thursday 3:30PM New York / 1930 GMT

Price Current Net ChangeYield % (bps)Three-month bills 0.3375 0.3434 -0.091Six-month bills 0.3625 0.3692 -0.025Two-year note 101-58/256 0.4968 0.001Three-year note 99-194/256 0.5816 -0.018Five-year note 102-72/256 0.6572 -0.007Seven-year note 102-18/256 0.8186 0.03510-year note 105-220/256 0.8821 0.06030-year bond 112-132/256 1.4808 0.166

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap -3.75 -2.75

spread

U.S. 3-year dollar swap -7.00 -0.25

spread

U.S. 5-year dollar swap -0.50 -1.75

spread

U.S. 10-year dollar swap -5.00 -4.75

spread

U.S. 30-year dollar swap -61.75 -15.75

spread

(Additional reporting by Karen Brettell in New York; editing by Jonathan Oatis)