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TREASURIES-Longer-term yields rise, market volatile as investors watch U.S. pandemic response

By Ross Kerber

(New throughout, updates prices, market activity, comments) By Ross Kerber BOSTON, March 18 (Reuters) - Longer-term U.S. Treasury yields swung higher in volatile trading on Wednesday as investors watched for the U.S. response to the coronavirus pandemic to take shape and said lower trade volumes made market signals less clear. The benchmark 10-year yield was up 15.3 basis points at 1.1487% in afternoon trading, after reaching above 1.22% and then sinking below 1% during the session. Stan Shipley, macro research analyst for Evercore ISI, said many traders do not know what to do as they sort out various moves by central banks and the Trump administration responding to the health emergency and shoring up the economy. "Yields are very volatile right now. There's a lot of technical issues going on, he said. FHN Financial interest rate strategist Jim Vogel said lower trading volumes this month have reduced the usefulness of bond market signals for policymakers and investors. "At every given two-hour stretch there’s not enough flow to be able to say precisely what Treasury yields are indicating other than the last 5 or 6 trades. That’s a form of illiquidity," he said. Currently, "It’s hard to say what the Treasury market is really concluding, other than reacting to headlines,” Vogel said. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was down 1.7 basis points at 0.4436% in afternoon trading. The U.S. yield curve, measured as the difference between the yields on two- and 10-year Treasury notes, was at more than 70 basis points, about 14 basis points higher than Tuesday's close and at its highest levels since early 2018. Cases of the respiratory illness have been reported in all 50 U.S. states and millions of Americans are staying home from work. On Wednesday the Dow Jones index fell more than 7% to a three-year low. The Trump administration on Tuesday pressed for a $1 trillion stimulus package, possibly to include $1,000 direct payments to individual Americans. The Fed on Tuesday said it would reopen the so-called Commercial Paper Funding Facility to underwrite the short-term loans companies often use to fund operations, a key financial market backstop first set up 2007 to 2009. It also extended its reach as the economy's lender of last resort to the two dozen Wall Street primary dealers, letting them pledge municipal bonds, corporate debt and equity securities as collateral for 90-day Fed loans to keep credit flowing. The New York Fed said it will make up to $1 trillion a day available for loans in the repurchase agreement (repo) market for the remainder of this week. On Wednesday morning, the New York Fed said it accepted $85.8 billion in overnight repo bids from primary dealers. March 18 Wednesday 12:54PM New York / 1654 GMT Price Current Net Yield % Change (bps) Three-month bills 0.0275 0.028 -0.180 Six-month bills 0.11 0.1116 -0.127 Two-year note 101-82/256 0.4436 -0.017 Three-year note 99-210/256 0.5607 0.019 Five-year note 101-248/256 0.7193 0.069 Seven-year note 100-188/256 1.0152 0.121 10-year note 103-72/256 1.1487 0.153 30-year bond 104-248/256 1.7849 0.205 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 11.25 4.50 spread U.S. 3-year dollar swap 4.00 1.00 spread U.S. 5-year dollar swap 2.75 -3.75 spread U.S. 10-year dollar swap -13.50 -7.25 spread U.S. 30-year dollar swap -73.25 -9.00 spread (Reporting by Ross Kerber Editing by Nick Zieminski and David Gregorio)