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TREASURIES-Yields pulled lower as risk appetite wanes

 (Recasts, updates yields; adds analyst comments, Yellen
remarks)
    By Karen Pierog
    May 4 (Reuters) - A safe-haven bid helped push U.S. Treasury
yields lower on Tuesday, while U.S. Treasury Secretary Janet
Yellen warned that rates may need to rise to keep the economy
from running too hot.
    The benchmark 10-year yield was last down 1
basis points at 1.5959%, holding below a 14-month high of 1.776%
reached on March 30. 
    Yields slid amid a stock selloff with the Nasdaq down more
than 2%. Later in the session, longer-dated yields ticked
higher after the release of remarks by Yellen, who said interest
rates may need "to rise somewhat" to prevent the economy from
overheating. 
    George Goncalves, head of U.S. Macro Strategy at MUFG in New
York, said while the drop in equities was probably a catalyst
for Tuesday's lower yields, there was also some skepticism
creeping into the bond market.
    "I think there's a mood starting to form that perhaps
economic data will not be as robust as many were anticipating,"
Goncalves said. 
    Data on Monday that showed U.S. manufacturing activity
growth slowed in April amid supply chain challenges and
increased demand sent yields tumbling.
    Goncalves said the upcoming April employment report could
shake up the current "holding pattern" in the Treasury market.
    "To get this market back on track to higher yields, it needs
to be a blockbuster (non-farm payrolls) number on Friday,"
Goncalves said. 
    Meanwhile, the market was bracing for more supply. 
    The U.S. Treasury said on Monday it plans to borrow $463
billion in the second quarter, assuming an end-of-June cash
balance of $800 billion, as spending increases in response to
the pandemic. That was much bigger than its February estimate of
$95 billion, which preceded the March enactment of the $1.9
trillion American Rescue Plan.
    On Wednesday, second-quarter refunding details, including
anticipated auction sizes for each maturity of notes and bonds,
will be announced.
    "There's a chance that there's a resumption of those
concerns around heavy supply and the market's ability to digest
that," said Bill Merz, chief fixed income strategist at U.S.
Bank Wealth Management.
    The two-year Treasury yield, which typically
moves in step with interest rate expectations, was last less
than a basis point higher at 0.1624%. 
    A closely watched part of the yield curve that measures the
gap between yields on two- and 10-year Treasury notes 
 was last less than a basis point flatter at 143
basis points.
    The yield on 10-year Treasury Inflation-Protected Securities
 fell to its lowest level since February at
-0.868%. It was last at -0.828%.
    The effective fed funds rate rose to 0.06% as of
Monday, after falling to 0.05% on April 30, its lowest level
since June 2020. The overnight repo rate, which
measures short-term borrowing costs, fell to 0.02% on Tuesday
from 0.03% on Monday.
    May 4 Tuesday 3:44PM New York / 1944 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.02         0.0203    0.002
 Six-month bills               0.04         0.0406    0.003
 Two-year note                 99-237/256   0.1624    0.002
 Three-year note               100-40/256   0.3216    0.000
 Five-year note                99-166/256   0.8221    -0.008
 Seven-year note               99-212/256   1.2758    -0.012
 10-year note                  95-192/256   1.5959    -0.010
 20-year bond                  95-132/256   2.1545    -0.016
 30-year bond                  91-140/256   2.2668    -0.022
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        11.25        -0.25    
 spread                                               
 U.S. 3-year dollar swap        14.00         0.00    
 spread                                               
 U.S. 5-year dollar swap         9.50         0.00    
 spread                                               
 U.S. 10-year dollar swap       -1.00        -0.50    
 spread                                               
 U.S. 30-year dollar swap      -26.50        -0.50    
 spread (By Karen Pierog; Editing by Nick Macfie and Will Dunham)
  
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