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TREASURIES-Yields higher in volatile session as investors watch U.S. pandemic response

By Ross Kerber

(Updates with market activity, recasts) By Ross Kerber BOSTON, March 18 (Reuters) - U.S. Treasury yields touched high marks late in a volatile trading session 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 18 basis points at 1.1767% in afternoon trading after swings that took it above 1.2% and below 1% at several points during the day. The wide trading ranges seemed to reflect reduced liquidity, several traders said. FHN Financial interest rate strategist Jim Vogel said lower trading volumes this month have also 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. 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. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was up 7.3 basis points at 0.5337% in afternoon trading. The U.S. yield curve, measured as the difference between the yields on two- and 10-year Treasury notes, was at 62 basis points, about 6 basis points higher than Tuesday's close and at its highest levels since early 2018. A late-afternoon rise in yields occurred even as U.S. stocks were extending their fall and were down 9% at one point. The U.S. Treasury and Internal Revenue Service said they would allow U.S. individuals and corporations to defer making certain tax payments until July 15. Cases of the respiratory illness have been reported in all 50 U.S. states and millions of Americans are staying home from work. The Trump administration on Wednesday asked Congress to approve $500 billion in cash payments to taxpayers and $50 billion in secured loans to U.S. airlines to address the financial impact of the coronavirus. 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. In another operation later in the day, it accepted a further $13.2 billion in overnight repo bids. March 18 Wednesday 3:33PM New York / 1933 GMT Price Current Net Yield % Change (bps) Three-month bills 0.02 0.0203 -0.188 Six-month bills 0.075 0.0761 -0.163 Two-year note 101-37/256 0.5337 0.073 Three-year note 99-134/256 0.6613 0.119 Five-year note 101-154/256 0.7943 0.144 Seven-year note 100-66/256 1.0864 0.192 10-year note 103-4/256 1.1767 0.181 30-year bond 105-104/256 1.7665 0.186 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 4.75 -2.00 spread U.S. 3-year dollar swap -2.50 -5.50 spread U.S. 5-year dollar swap 1.75 -4.75 spread U.S. 10-year dollar swap -13.25 -7.00 spread U.S. 30-year dollar swap -73.25 -9.00 spread (Reporting by Ross Kerber Editing by Nick Zieminski and David Gregorio)