TREASURIES-Treasuries steady as investors await possible taper hint from Fed meeting

BY Reuters | ECONOMIC | 09/21/21 10:33 AM EDT
    (Adds U.S. market open)
    By Herbert Lash
    NEW YORK, Sept 21 - U.S. Treasury yields were steady on Tuesday as investors
took in stride an equity market sell-off and rebound, waiting for the end of
this week's Federal Reserve meeting that may shed light on when its massive
purchase of government debt begins to ease.
    The yield on the benchmark 10-year Treasury note was up 0.8
basis points to 1.318% in morning trade.
    Stocks on Wall Street opened higher as investors put aside concerns about a
potential collapse of property developer China Evergrande Group (EGRNF) and
the impact its $305 billion in obligations could cause to the Chinese economy
and financial markets.
    Analysts played down the threat of Evergrande's troubles even as Beijing
showed no signs it would intervene to stem any domino effects the company's
troubles may spawn.
    The start of the Fed's two-day policy-setting meeting was of greater concern
as analyst await any signal regarding when the U.S. central bank will begin
tapering its asset purchases.
    "The pace of reductions dictates to some degree the timing of the first Fed
rate hike," said Guy LeBas, chief fixed-income strategist at Janney Capital
Management. "Markets have essentially priced in a $10 billion-a-month pace of
    A $5 billion-a-month reduction in bond purchase would further delay
expectations of the Fed's first rate hike, while a $15 billion-a-month reduction
would pull forward expectations of a first rate hike, LeBas said.
    A steady reduction, spread out over several quarters, would likely minimize
any disruption to the financial markets.
    The Fed is likely to indicate the initiation of tapering in November at a
rate that will be firmly set so as to eliminate purchases by mid-2022, said John
Vail, chief global strategist at Nikko Asset Management, in a note.
    The Treasury plans to sell $24 billion of 20-year bonds in an auction and
announce results after 1 p.m. ET (1700 GMT).
    A closely watched part of the U.S. Treasury yield curve measuring the gap
between yields on two- and 10-year Treasury notes, seen as an
indicator of economic expectations, was at 110.4 basis points.
    The two-year U.S. Treasury yield, which typically moves in step
with interest rate expectations, was down 0.6 basis points at 0.210%.
    The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities
(TIPS) was last at 2.473%.
    The 10-year TIPS breakeven rate was last at 2.305%, indicating
the market sees inflation averaging about 2.31% a year for the next decade.

    September 21 Tuesday 10:07AM New York / 1407 GMT
                                      Price                                                         Current     Net
                                                                                                    Yield %     Change
 Three-month bills                    0.03                                                          0.0304      0.000
 Six-month bills                      0.045                                                         0.0456      0.000
 Two-year note                        99-214/256                                                    0.2098      -0.006
 Three-year note                      99-200/256                                                    0.4489      -0.003
 Five-year note                       99-172/256                                                    0.8179      -0.003
 Seven-year note                      100-22/256                                                    1.1121      0.001
 10-year note                         99-100/256                                                    1.3158      0.007
 20-year bond                         99-16/256                                                     1.8063      0.013
 30-year bond                         103-24/256                                                    1.8645      0.018

                                      Last (bps)                                                    Net Change
 U.S. 2-year dollar swap spread        11.50                                                          0.50
 U.S. 3-year dollar swap spread        12.00                                                          0.00
 U.S. 5-year dollar swap spread        10.50                                                          0.25
 U.S. 10-year dollar swap spread        2.75                                                         -0.50
 U.S. 30-year dollar swap spread      -24.75                                                         -0.75

 (Reporting by Herbert Lash; Additional reporting by Stefano Rebaudo in London;
Editing by Lisa Shumaker)

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