TREASURIES-Fed's global growth concerns steepen yield curve

 (New throughout; adds FOMC minutes news, analyst quote; updates
yields)
    By Kate Duguid
    NEW YORK, July 10 (Reuters) - The U.S. Treasury yield curve
steepened on Wednesday after the Federal Reserve's concerns
about global growth increased expectations that the U.S. central
bank may cut rates more sharply than expected in July. 
    The concerns were expressed in Chair Jerome Powell's
prepared remarks to a congressional committee which were
published Wednesday morning, with the minutes from the Federal
Open Market Committee's June meeting out at 2 p.m. EST. The
chance of a 50-basis point cut rose to 28.7% from 3.3% on
Tuesday, according to CME Group's FedWatch tool, while the
chance of a 25-point cut in July fell to 71.4%.
    Powell's testimony said the Fed stands ready to "act as
appropriate" to sustain a decade-long economic expansion. He
contrasted the "baseline outlook" of continued U.S. growth
against risks including persistently weak inflation, slower
growth in other major economies and a downturn in business
investment driven by uncertainty over the Trump administration's
trade war with China.
    That view echoed the position of multiple policymakers at
the FOMC's June 18-19 meeting, who said rates should come down
to "cushion the effects" of a U.S. trade war and to firm up
inflation, the records published Wednesday showed. 
    The two-year Treasury yield, a proxy for market sentiment
about interest rate policy, was last 7.7 basis points lower at
1.828%. While yields on short-dated notes fell, those
on longer maturities rose, steepening the yield curve and ending
a multi-day flattening trend. 
    Wednesday's dovish message dispelled fears that June's
strong employment data published July 5 could change Fed
thinking about the state of the economy.  
    "The market is focused on the part of Powell's testimony
where he says 'uncertainties continue.' And that led the market
to think that uncertainty alone, rather than the incoming data,
is enough to get them to move, likely 25 basis points, at the
end of this month," said Michael Pond, head of global
inflation-linked research at Barclays in New York. 
    The spread between two- and 10-year yields
was last up to 23.5 basis points, its highest in a week. It hit
a month low of 14.2 basis points on Tuesday. 
   "It's really more about the global economy than it is about
the U.S. economy right now," said Kathy Jones, chief fixed
income strategist at Schwab Center for Financial Research. "The
slowdown in China and the big slowdown in manufacturing in
Europe, those are the big factors you've got to keep an eye on."
    Also on Wednesday, the Treasury Department auctioned off $24
billion of new 10-year notes to average demand. Indirect bidders
took 60.76% of the offering, direct bidders took 12.85% and
primary dealers took 26.39%. 

    July 10 Wednesday 3:09PM New York / 1909 GMT
                               Price                  
 US T BONDS SEP/d              154-22/32    -13/32    
 10YR TNotes SE/d              127-112/256  5/32      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2.1425       2.1841    -0.070
 Six-month bills               2.0175       2.0723    -0.068
 Two-year note                 99-157/256   1.8256    -0.079
 Three-year note               99-220/256   1.7984    -0.068
 Five-year note                99-160/256   1.8292    -0.042
 Seven-year note               99-160/256   1.9327    -0.019
 10-year note                  102-196/256  2.063     0.007
 30-year bond                  106-72/256   2.5721    0.039
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       23.50        8.10      
 30-year vs 5-year yield       74.20        8.25      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         4.25         2.25    
 spread                                               
 U.S. 3-year dollar swap         1.25         1.00    
 spread                                               
 U.S. 5-year dollar swap        -1.25         2.00    
 spread                                               
 U.S. 10-year dollar swap       -5.50         1.00    
 spread                                               
 U.S. 30-year dollar swap      -31.75         0.50    
 spread                                               
 
    
    

 (Reporting by Kate Duguid; Editing by David Gregorio)
  

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