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TREASURIES-Yields fall in cautious market ahead of Fed meeting


(Recasts, updates yields, adds analyst comments)

 By Karen Pierog

 CHICAGO, March 15 (Reuters) - Longer-term U.S. Treasury

yields tumbled and the yield curve flattened on Monday as

investors turned cautious ahead of this week's Federal Reserve

meeting and upcoming economic data.

 Yields rose sharply late last week, lifted by optimism over

the U.S. economy and increased debt supply expectations with the

enactment of a $1.9 trillion pandemic-related federal fiscal

stimulus plan.

The benchmark 10-year yield, which reached

1.642% on Friday, its highest level since February 2020, was

last down 2.8 basis points at 1.6073%.

"After the moves we saw last week, I wouldn't be surprised

if there was a little bit of short covering and position

alignment ahead of retail sales tomorrow and the Fed meeting on

Wednesday," said Ben Jeffery, a strategist at BMO Capital

Markets in New York, noting that trading volume was on the

lighter side.

 The U.S. Commerce Department on Tuesday is due to release

February retail sales data following January's 5.3% surge.

 Meanwhile, the Fed begins its two-day meeting on Tuesday.

 "Until the meeting, I think there's not going to be any

really high conviction to push a trade one way or another,"

Jeffery said. "People are going to wait to see what the updated

forecasts look like, the updated language looks like and the

press conference as well to see if (Fed Chair Jerome) Powell has

changed his tone at all." 

 Fed policymakers are not likely to detour from their current

monetary roadmap despite an expected forecast of rapid economic

growth in 2021 in the wake of the coronavirus vaccine rollout

and the massive stimulus money heading to taxpayers and others.

"What we expect is that there is not going to be any change

at this point," said Kelly Ye, director of research at IndexIQ,

a unit of New York Life Investments. 

She added that while the market is pricing in probably three

rate hikes in 2023, Fed officials have been saying "they haven't

seen any sustainable economic growth and reduction in the

unemployment rate yet, so they're going to be very accommodative

in the near future." 

This week will also bring more supply with a $24 billion,

20-year bond auction on Tuesday and a $13 billion, 10-year

Treasury Inflation-Protected Securities auction on Thursday. 

Demand will be scrutinized after last week's selloff in U.S.

government bonds fueled worries about how high yields could rise

without destabilizing the stock market.

The two-year Treasury yield, which typically

moves in step with interest rate expectations, was last up less

than a basis point at 0.153%. 

 A closely watched part of the yield curve, which measures

the gap between yields on two- and 10-year Treasury notes

,flattened by 1.61 basis points to 145.78 basis

points, its steepest level since 2015. 

 March 15 Monday 2:57PM New York / 1957 GMT

              Price        Current   Net

               Yield %   Change


 Three-month bills             0.025        0.0253    -0.005

 Six-month bills               0.0475       0.0482    0.002

 Two-year note                 99-242/256   0.153     0.002

 Three-year note               99-190/256   0.3365    -0.006

 Five-year note                98-102/256   0.8305    -0.016

 Seven-year note               99-4/256     1.2733    -0.019

 10-year note                  95-152/256   1.6073    -0.028

 20-year bond                  93-152/256   2.2768    -0.037

 30-year bond                  89-108/256   2.3706    -0.030


   DOLLAR SWAP SPREADS                                

                               Last (bps)   Net       



 U.S. 2-year dollar swap        10.00        -0.25    


 U.S. 3-year dollar swap        10.00        -0.25    


 U.S. 5-year dollar swap         8.00         0.00    


 U.S. 10-year dollar swap        1.00         0.00    


 U.S. 30-year dollar swap      -30.75         0.50    



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