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TREASURIES-Yields higher after Fed keeps rates pinned down

 (Recasts and updates with market activity after Fed statement,
analyst comment)
    By Ross Kerber
    Sept 16 (Reuters) - Investors on Wednesday pushed
longer-term U.S. Treasury yields to their highest levels this
week and steepened the yield curve after the U.S. Federal
Reserve said it would keep interest rates near zero for some
time.
    As expected, the Fed promised to keep rates near zero until
inflation is on track to "modestly exceed" the U.S. central
bank's 2% inflation target. The change in guidance was part of a
policy shift announced last month.
    The Fed's stance drove down prices and drove up yields on
Treasuries, especially on longer-term bonds whose value is more
sensitive to inflation expectations.
    The benchmark 10-year yield was at 0.6887% in
afternoon trading, a basis point higher for the day, and reached
as high as 0.702% at one point in the afternoon. The 30-year
bond was up 1.7 basis points at 1.4466%.
    Justin Hoogendoorn, head of fixed income strategy for Piper
Sandler, said the Fed appeared to convince at least some traders
its plan to stimulate inflation was on track. "The near-term
reaction is the market believing" in the Fed's effectiveness, he
said.       
     U.S. consumer spending appeared to slow in August as
extended unemployment benefits were cut for millions of
Americans, offering more evidence that the economic recovery
from the COVID-19 recession was faltering.
    U.S. stocks added to earlier gains after the release of the
statement before trending lower as Fed Chair Jerome Powell spoke
at an afternoon news conference, with the S&P 500 index
last down 0.1% and the Nasdaq falling 0.8%.
    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 55 basis points, about three basis points
higher than where it stood at one point in the morning and well
above its level of 33 basis points reached on July 24.        
    The two-year  U.S. Treasury yield, which
typically moves in step with interest rate expectations, was
down less than a basis point at 0.137%.
    
      September 16 Wednesday 3:30PM New York / 1930 GMT Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.11         0.1116    0.000
 Six-month bills               0.115        0.1167    0.000
 Two-year note                 99-250/256   0.137     -0.002
 Three-year note               99-228/256   0.1616    0.000
 Five-year note                99-224/256   0.2754    0.006
 Seven-year note               100-56/256   0.468     0.007
 10-year note                  99-100/256   0.6887    0.010
 20-year bond                  98-56/256    1.2261    0.017
 30-year bond                  98-68/256    1.4466    0.017
                                                      
   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         6.75         0.00    
 spread                                               
 U.S. 5-year dollar swap         5.25        -0.50    
 spread                                               
 U.S. 10-year dollar swap        0.00        -0.50    
 spread                                               
 U.S. 30-year dollar swap      -37.25        -1.00    
 spread (Reporting by Ross Kerber in Boston
Editing by Nick Zieminski and Chizu Nomiyama)
  
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