TRESOR – US yields fall on conflicting news on Ukraine

Band Rodrigo Campos

NEW YORK, February 16 (Reuters)The U.S. Treasury yield The curve steepened after a rally in the 2-year rating following a reassessment of the Federal Reserve’s trajectory towards monetary policy normalization, as traders kept an eye on developments at the border between Ukraine and Russia.

Federal Reserve officials agreed last month that it was time to tighten monetary policy, but also that decisions would depend on a meeting-by-meeting data analysis, according to the minutes of the last policy meeting.

“What we’re seeing is a re-steepening of the curve, led by a rally in the two-year sector,” said Ian Lyngen, head of US rates strategy at BMO Capital Markets.

“The market is pricing in a more pedestrian rate hike cycle, not a 50bp takeoff followed by a rapid climb to a neutral rate. It will be a measured and predictable up cycle, which contrasts with what some in the market had previously assumed.”

The two years US2YT=RR The US Treasury yield, which generally moves in line with interest rate expectations, was down 3.4 basis points at 1.535%. It had previously hit a low of 1.496%.

Outside the Fed, headlines about rising tensions on the border between Ukraine and Russia kept investors stuck between risky assets and safe havens for some timewhile oil hit its highest price since 2014 this week.

The US and NATO say Russia is continuing to build troops around Ukraine despite Moscow’s insistence on pulling out, questioning President Vladimir Putin’s stated desire to negotiate a solution to the crisis .

“It seems we are getting conflicting news from Ukraine, what NATO is telling us is contrary to what we have heard from Russia. The situation is still at the forefront,” said Tom di Galoma, managing director of Seaport Global Holdings in New York.

The return on 10-year treasury bills US10YT=RR rose 0.2 basis points to 2.047%.

The yield of the 30-year Treasury bond US30YT=RR rose 0.7 basis points to 2.368%.

A closely watched part of the U.S. Treasury yield curve measuring the spread between two- and 10-year Treasury yields US2US10=RRconsidered an indicator of economic expectations, stood at 51.2 basis points.

The five-year U.S. Treasury Inflation-Protected Securities (TIPS) break-even rate US5YTIP=RR was last at 2.851%, after closing at 2.838% on Tuesday.

The US dollar 5-year inflation-linked swap USIL5YF5Y=Rconsidered by some to be a better indicator of inflation expectations due to possible distortions caused by the Fed’s quantitative easing, last stood at 2.389%.

The 20-year bond auction was heavily bid earlier Wednesday at a bid-to-cover ratio of 2.44.

(Reporting by Rodrigo Campos; Editing by David Holmes and Chizu Nomiyama)

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Christi C. Elwood