TREASURIES-U.S. Treasury yields edge up as next week's Fed meeting looms

    (Adds open of U.S. market)
    By Herbert Lash
    NEW YORK, July 23 (Reuters) - Treasury yields moved higher
on Friday as investors looked ahead to the Federal Reserve's
policy-setting meeting next week, where the strength of the U.S.
recovery and when the Fed might start to curb its support for
the economy will be in focus.
    The yield on 10-year Treasury notes hovered
around 1.3%, or almost 17 basis points higher than a five-month
low set Tuesday, but was still at the low end of a recent range.
The benchmark note traded up 1.8 basis points to 1.285%.
    The yield on the 30-year Treasury bond rose 2.5
basis points to 1.928%.
    Fears of renewed lockdowns due to the Delta variant of the
coronavirus and the Fed's insistence that inflation will remain
within its 2% target have recently spurred a sharp rally in
Treasury prices, which move inversely to yields.
    But the durability of that rally, given expectations for
improving fundamentals through this year, is questionable
barring renewed lockdowns, said Jonathan Cohn, trading
strategist at Credit Suisse Securities USA LLC.
    "We continue to believe yields ought to go higher but at
this point think it's prudent to be more tactical with entry
points and holding periods as the market attempts to find an
equilibrium," he said.
    Real yields are close to record lows and the market is
questioning whether the Fed can hike more than a couple of times
given tapering is actively discussed, with inflation data
surprising on the upside, Cohn said.
    This "speaks to that need to be tactical and respect some of
the puzzling price action in rates," he said.
    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 108.3 basis points.
    The two-year U.S. Treasury yield, which typically
moves in step with interest rate expectations, was down 0.4
basis points at 0.198%.
    The breakeven rate on five-year U.S. Treasury
Inflation-Protected Securities (TIPS) was last at
2.515%.
    The 10-year TIPS breakeven rate was last at
2.317%, indicating the market sees inflation averaging that rate
annually for the next decade.

  July 23 Friday 10:24AM New York / 1424 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.05         0.0507    0.003
 Six-month bills               0.05         0.0507    0.000
 Two-year note                 99-219/256   0.2001    -0.002
 Three-year note               100-2/256    0.3724    -0.003
 Five-year note                100-196/256  0.7166    0.005
 Seven-year note               101-120/256  1.0298    0.012
 10-year note                  103-32/256   1.2847    0.018
 20-year bond                  106-164/256  1.848     0.023
 30-year bond                  110-28/256   1.9275    0.025

   DOLLAR SWAP SPREADS
                               Last (bps)   Net
                                            Change
                                            (bps)
 U.S. 2-year dollar swap         8.00         0.00
 spread
 U.S. 3-year dollar swap        10.50         0.50
 spread
 U.S. 5-year dollar swap         8.00        -0.25
 spread
 U.S. 10-year dollar swap       -0.50        -0.50
 spread
 U.S. 30-year dollar swap      -27.00        -0.25
 spread



 (Reporting by Herbert Lash; Editing by Dan Grebler)

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