CASH – US yields dip after Fed remains patient on rate hikes

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 (Updates yields, adds analyst comments)
    By Karen Pierog
    CHICAGO, Nov 4 (Reuters) - U.S. Treasury yields fell and the
yield curve steepened on Thursday as the market unwound from
expectations of quicker Federal Reserve interest rate hikes a
day after the central bank signaled it was in no hurry to do so.
    A decision by the Bank of England to hold off on raising
rates, which pushed some government bond yields down sharply in
Europe, also helped fuel a rally in Treasuries, according to
Andrew Richman, senior fixed income strategist at Sterling
Capital Management.
    "It's a big reset today," he said.
    The benchmark 10-year yield, which rose as high
as 1.609% earlier in the session, later fell to its lowest level
since mid-October at 1.509%, marking its biggest downward move
since July 19. It was last down 5.8 basis points at 1.5209%. 
    The two-year yield, which hit a 19-month peak of
0.5640% last week amid heightened expectations of a Fed interest
rate hike in 2022, tumbled as low as 0.391%. It was last 6.5
basis points lower at 0.4125%.
    The U.S. central bank announced on Wednesday it will start
cutting its monthly $120 billion purchases of Treasuries and
mortgage-backed securities by $15 billion a month, while
affirming its belief that current high inflation "is expected to
be transitory." Fed Chair Jerome Powell indicated that more job
growth was needed before the central bank should raise interest
rates.
    Yield curves steepened to their highest levels in about a
week on Thursday. 
    "(The steepening is) telling us that the market is unwinding
these expectations for a lot of rate hikes sooner rather than
later, so I think (the market is) starting to realize, at least
from what Powell has said, the Fed is pretty serious about being
patient and allowing inflation to run a bit high," said Kathy
Jones, chief fixed income strategist at the Schwab Center for
Financial Research in New York.
    A closely watched part of the yield curve that measures the
gap between yields on two- and 10-year Treasury notes
 reached 114 basis points, but later flattened to
around 110.40 basis points. The spread between five-year notes
and 30-year bonds climbed to as high as 88.20
basis points. The gap between 10-year notes and 30-year bonds
 was last 2.20 basis points steeper at 43.70
basis points.
    Inflation expectations were elevated, with the five-year
breakeven inflation rate rising as high as 2.95%.
It was last at 2.89%
    The five-year yield, a part of the curve that is
sensitive to Fed rate expectations, was last 8.4 basis points
lower at 1.1008%. 
    The longest end of the curve was inverted for a
sixth-straight session, although not consistently. The 20-year
yield was last at 1.9644% and the 30-year yield
 at 1.9596%. 
    Ahead of Friday's October employment report, the U.S. Labor
Department reported on Thursday that initial jobless claims fell
to a 19-month low last week.
    According to a Reuters poll of economists, nonfarm payrolls
likely rose by 450,000 jobs last month after only 194,000 jobs
were created in September, the fewest in nine months.
    "If we get a number that's higher than expected tomorrow, I
think that could certainly put a little bit of weakness into
Treasuries," Richman said. "If the number comes in weaker, it's
just as likely rates still rally from here."
   November 4 Thursday 3:05PM New York / 1905 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.0425       0.0431    -0.008
 Six-month bills               0.065        0.0659    -0.005
 Two-year note                 99-237/256   0.4125    -0.065
 Three-year note               99-216/256   0.6787    -0.078
 Five-year note                100-30/256   1.1008    -0.084
 Seven-year note               100          1.375     -0.071
 10-year note                  97-140/256   1.5209    -0.058
 20-year bond                  96-128/256   1.9644    -0.030
 30-year bond                  100-232/256  1.9596    -0.026
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        21.00         0.50    
 spread                                               
 U.S. 3-year dollar swap        21.75         0.50    
 spread                                               
 U.S. 5-year dollar swap         9.75         1.75    
 spread                                               
 U.S. 10-year dollar swap        3.25         0.75    
 spread                                               
 U.S. 30-year dollar swap      -21.75        -1.25    
 spread (Reporting by Karen Pierog; Editing by Will Dunham and Dan
Grebler)
  


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