TREASURIES-U.S. yields skid on growth worries; Fed policy update looms

    (Adds new comment, U.S. 5-year note auction results; updates
    * U.S. 5-year note auction was decent
    * Fed seen holding monetary policy steady
    * U.S. 10-year yield may have seen floor -analyst

    By Gertrude Chavez-Dreyfuss
    NEW YORK, July 27 (Reuters) - U.S. Treasury yields tumbled
on Tuesday as risk appetite continued to languish amid lingering
concerns about high inflation and the fast-spreading Delta
coronavirus variant that could thwart global economic growth.
    Investors are also cautious, with the U.S. Federal Reserve's
two-day monetary policy meeting underway. Analysts said the Fed,
which began its meeting on Tuesday, is likely to stand pat on
monetary policy but could discuss plans for tapering its asset
purchases during its Jackson Hole, Wyoming, gathering in August.
    Tuesday's U.S. 5-year note sale showed decent results
overall, but not as strong as initially expected, especially
with the rally in Treasuries going into the auction. The high
yield was 0.710%, slightly lower than the when-issued or
expected rate of 0.711% at the bid deadline.
    The bid-to-cover ratio, a measure of demand, was 2.36, the
same as last month, but below what analysts said was the 2.40
    The yield on 10-year Treasury Inflation-Protected Securities
(TIPS) plunged to a record low of -1.147% for a
second straight session as investors bought TIPS on concerns
about the prospect of steeper consumer prices going forward. The
yield was last at -1.117%.
    U.S. durable goods disappointed expectations, rising 0.8%
compared with forecasts for a 2.1% rise. Orders for non-defense
capital goods excluding aircraft, a closely watched proxy for
business spending plans, were also slightly below forecasts,
climbing 0.5% last month, compared with expectations for a 0.7%
    "With the increased uncertainty from China and the Delta
variant, the markets are taking a breather from last week's
reversal on rates and equity prices," said Ellis Phifer,
managing director of fixed income at Raymond James in Memphis,
    U.S. 10-year yields were on an uptrend for most of last
    "Maybe it's the pause that refreshes. The bond market is
currently in a bullish trend with lower highs and lower lows in
yields," Phifer added.
    In early afternoon trading, the U.S. 10-year Treasury yield
slid to 1.239% from 1.276% late on Monday.
    "It looks like we have made a floor after tumbling from
1.75% in the U.S. 10-year. But it's hard to get very excited
yet," said Stan Shipley, fixed income strategist at Evercore ISI
in New York.
    "When we were at 1.75%, that bear trade is very crowded and
there are still some people that need to unwind that trade," he
    U.S. 30-year yields dropped to 1.896% from
Monday's 1.925%.
    Post-auction, U.S. 5-year note yields were down at 0.697%
, from Monday's 0.713%.
    The 5-year auction has been on investors' radar, with the
note reflecting market sentiment about Wednesday's Fed statement
and the press briefing from Chairman Jerome Powell.
    The U.S. 5-year note has come to reflect market views on Fed
monetary policy.
    The yield curve, another gauge of risk sentiment, flattened
on Tuesday to 102.4 basis points, as measured by the spread
between 2-year and 10-year yields. The curve had
steepened in the five previous sessions.

    July 27 Tuesday 1:50PM New York / 1750 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.05         0.0507    0.000
 Six-month bills               0.05         0.0507    -0.002
 Two-year note                 99-213/256   0.2094    -0.007
 Three-year note               100-6/256    0.3671    -0.008
 Five-year note                100-222/256  0.6955    -0.017
 Seven-year note               101-178/256  0.996     -0.029
 10-year note                  103-140/256  1.2394    -0.037
 20-year bond                  107-68/256   1.8116    -0.032
 30-year bond                  110-216/256  1.8969    -0.028

                               Last (bps)   Net
 U.S. 2-year dollar swap         6.50        -2.00
 U.S. 3-year dollar swap        10.25        -0.75
 U.S. 5-year dollar swap         8.50        -0.25
 U.S. 10-year dollar swap        0.25         0.25
 U.S. 30-year dollar swap      -27.75        -0.25

 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Jonathan
Oatis and Dan Grebler)

Copyright © Reuters 2008. All rights reserved. Republication or redistribution of Reuters content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters and the Reuters sphere logo are registered trademarks and trademarks of the Reuters group of companies around the world.

News, commentary and research reports are from third-party sources unaffiliated with Fidelity. Fidelity does not endorse or adopt their content. Fidelity makes no guarantees that information supplied is accurate, complete, or timely, and does not provide any warranties regarding results obtained from their use.