CASH – Yields rise, curve steepens after Fed weakens green lights

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(Redesigns, Yield Updates, Adds Analyst Commentary) By Karen Pierog CHICAGO, Nov 3 (Reuters) – US Treasury yields rose and the curve steepened on Wednesday after the Federal Reserve, as expected , announced that it would start cutting back on asset purchases this month, but stuck to its claim that high inflation is transient and likely won’t lead to a faster rise in interest rates . The benchmark 10-year yield, which fell to a 2.5-week low of 1.519% earlier in the session, climbed to a high of 1.602%. It was last up 4.2 basis points to 1.5893%. The two-year yield, which hit a 19-month high of 0.5640% last week amid heightened expectations of a Fed interest rate hike in 2022, was less than one basis point at 0.458%. At the end of its two-day meeting on Wednesday, the Fed said monthly purchases of $ 120 billion of treasury bills and mortgage-backed securities would be reduced by $ 15 billion per month from this month. , with plans to end the program in 2022. John Canavan, senior analyst at Oxford Economics, said the Fed’s gradual move was as expected. He added that although the wording of the statement from the Fed meeting provided “some recognition of the uncertainty about the transitory nature of inflation,” the central bank continued to espouse the transitory view. The result has been a steepening of the Treasury yield curve, according to Canavan. A closely watched portion of the yield curve that measures the spread between the yields of two- and ten-year Treasuries was last about 3.20 basis points steeper at 112.90 basis points. The spread between five-year bonds and 30-year bonds also widened, increasing from 2.90 basis points to 83.80 basis points. Last week, the market had anticipated earlier interest rate hikes due to rising inflation, with yields on the shorter end of the curve rising, flattening the yield curve. Fed funds futures show traders are still forecasting two rate hikes next year. As Fed Chairman Jerome Powell began answering questions from reporters, the five-year breakeven inflation rate exceeded 2.9%, but then eased. He was last at 2.876%. Meanwhile, the US Treasury on Wednesday announced cuts to coupon issuance on all maturities over the next quarter, with the largest cuts on seven and 20 year maturities. With the Fed buying fewer Treasuries, reducing the size of the coupon auctions somewhat equalizes technical supply and demand, according to Anders Persson, chief investment officer at Nuveen. The five-year yield, part of the curve sensitive to the Fed’s rate expectations, rose 2.4 basis points to 1.1735%. The longer end of the curve reversed for a fifth straight session with the latest 20-year yield at 2.0223% and the 30-year yield at 2.0111%. Ahead of Friday’s federal government employment report in October, the ADP’s national employment report showed on Wednesday that private payrolls increased by 571,000 jobs last month. Economists polled by Reuters had predicted that the private wage bill would increase by 400,000 jobs. Also on the data front, the Institute for Supply Management said its non-manufacturing activity index hit an all-time high in October. November 3 Wednesday 4:04 p.m. New York / Price GMT 2004 Net current yield% change (bp) Three-month bills 0.05 0.0507 0.000 Six-month bills 0.07 0.071 -0.003 Two-year note 99-214 / 256 0.458 0.002 Three-year note 99-174 / 256 0.7351 0.013 Five-year bond 99-196 / 256 1.1735 0.024 Seven-year bond 99-136 / 256 1.4457 0.029 10-year bond 96-240 / 256 1 .5,893 0.042 20-year bond 95-148 / 256 2.0223 0.052 30-year bond 99-192 / 256 2.0111 0.053 SPREADS DOLLAR SWAP Last (bps) Net change (bps) 2-year US dollar swap 20.50 0, 50 3-year US dollar swap spread 21.25 0.00 5-year US dollar swap spread 8.75 0.25 spread 10-year US dollar swap 3.00 0.25 30-year US dollar swap spread -20, 25 Gap of 0.50 (Reporting by Karen Pierog in Chicago and Sujata Rao and Dhara Ranasinghe in London, additional reporting by Gertrude Chavez-Dreyfuss in New York; editing by Jonathan Oatis and Kirsten Donovan)


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