(Corrects 2nd bullet to flattens instead of steepens.)
* U.S. 10-year, 20-year, 30-year fall to two-week lows
* U.S. yield curve flattens for 2nd day
* U.S. overnight repo rate goes negative lowest since late
By Gertrude Chavez-Dreyfuss
NEW YORK, May 24 (Reuters) - U.S. Treasury long-dated yields
fell to two-week lows on Monday, after a few Federal Reserve
officials affirmed their support to keep monetary policy
accommodative for some time, dampening recent expectations the
Fed would reduce bond purchases or flag rate hikes sooner than
what it has indicated to the market.
The U.S. yield curve flattened for a second straight session
on Monday, reflecting the Fed's dovish stance. The spread
between U.S. 2-year and 10-year yields slid to 145.20 basis
Fed Board Governor Lael Brainard, St. Louis Fed President
James Bullard, and Atlanta Fed President Raphael Bostic in
separate remarks all backed the U.S. central bank's current easy
monetary policy view.
Brainard, for one, said she sees inflation pressures fading,
and expects that spikes in prices associated with supply
bottlenecks and the reopening of the economy to "subside over
time," in line with what Fed Chairman Jerome Powell has said
repeatedly over recent weeks.
"The Fed is clearly thinking that the inflation we're
getting is just temporary and by the time we hit Labor Day,
inflation is going to head lower," said Stan Shipley, fixed
income strategist at Evercore ISI in New York. "That's why the
readings we're going to get for May, June and July are not going
to matter a lot on the inflation side and Fed policy."
In afternoon trading, the U.S. 10-year Treasury yield fell
to 1.604% from 1.632% late on Friday. Earlier in the
session, 10-year yields fell below 1.60%, the lowest level in
roughly two weeks.
U.S. 30-year yields were down at 2.3% from
Friday's 2.233%. They fell as low as 2.2.287%, the lowest since
TD Securities senior rates strategist Gennadiy Goldberg also
pointed to investor worries about potential tapering by the Fed
of its monthly bond purchases.
In Fed minutes last week, several policymakers said a
discussion about reducing the pace of asset purchases would be
appropriate "at some point" if the economic recovery continues
to gain momentum.
"The taper in 2013 didn't go as well as they would have
liked. ... So they may do a two-part taper where they taper
mortgages and then Treasuries or they convert mortgage buying
into Treasury buying," said Jake Remley, principal and senior
portfolio manager, at Income Research + Management.
"They have other options to announce a taper across the
board if they want to, for example, take their foot off the gas
on the housing market, which is showing a lot of signs of
…starting to have affordability issues with how hot home prices
have been over the last six to nine months," he added.
The market is also prepping for this week's auction of $183
billion in U.S. 2-year, 5-year and 7-year notes.
In money markets, the overnight repo rate dropped below 0%
to -0.1%, the lowest level since late March. Excess
cash in the financial system, as a result of the Fed's asset
purchases, has weighed on short-term rates.
May 24 Monday 2:49PM New York / 1849 GMT
Price Current Net
Yield % Change
Three-month bills 0.0125 0.0127 0.008
Six-month bills 0.0275 0.0279 0.008
Two-year note 99-242/256 0.1534 -0.004
Three-year note 99-200/256 0.324 -0.008
Five-year note 99-184/256 0.8083 -0.020
Seven-year note 99-228/256 1.2665 -0.021
10-year note 100-36/256 1.6097 -0.022
20-year bond 100-148/256 2.214 -0.030
30-year bond 101-128/256 2.3054 -0.028
DOLLAR SWAP SPREADS
Last (bps) Net
U.S. 2-year dollar swap 8.75 -0.50
U.S. 3-year dollar swap 11.25 -0.50
U.S. 5-year dollar swap 8.50 0.00
U.S. 10-year dollar swap -3.25 -0.25
U.S. 30-year dollar swap -29.75 0.00
spread (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by
Ritvik Carvalho in London; Editing by Kirsten Donovan and Leslie