U.S. Treasury yields rose on Friday as investors continued to digest last week's strong employment report and await next week's latest consumer price index and retail sales figures. The U.S. Bureau of Labor Statistics is scheduled on Feb. 14 to release January's CPI data, which is expected to show that headline prices rose 0.4% on the month, and also a 0.4% increase in core prices. Despite these forecasts, however, investors have expressed caution over the possibility of a stronger-than-expected CPI print, which could in turn sway the U.S. Federal Reserve's path forward for interest rates. "I think it's probably going to fall in line pretty much on CPI," said Tom di Galoma, managing director and co-head of rates trading at BTIG. "But the CPI number is a lot higher than it's been, and I think there's quite a bit of betting going on that we are going to see some stronger CPI data." Treasury yields jumped last week after U.S. employment data showed a 517,000 uptick in jobs through January, leading many investors to reconsider the odds that the Fed raises its federal funds rate beyond the 5.00%-5.25% peak previously expected. Yields fell slightly on Thursday after investors digested jobless claims numbers, which came in slightly higher than economists' forecasts but remained at levels consistent with a tight labor market.
They picked up the same afternoon after weaker demand than expected in a 30-year bond auction - the last of $96 billion in coupon-bearing supply sold this week. Yields continued rising on Friday after the University of Michigan's preliminary report showed U.S. consumer sentiment improved to a 13-month high in February, but that expectations of higher inflation continue to persist.
Benchmark 10-year note yields were last at 3.749%, their highest since Jan. 6. They have fallen from a 15-year high of 4.338% on Oct. 21, based on expectations that Fed tightening will lead to a recession this year. Meanwhile, two-year yields reached 4.525%, the highest since Nov. 30. "I can see (an increase of) another 50 basis points from the Fed," BTIG's di Galoma said. "But I think the (overall) market is kind of struggling with how much more the Fed has to do, and I think that's why rates are rising." Following the CPI report next week, the U.S. Census Bureau will release its January retail sales report, another datapoint watched closely by the Fed and market.
This is expected to show retail sales rebounding 1.6% in
January after falling 1.1% in December, according to a Reuters
survey of economists. In addition to domestic datapoints, yields have also risen
on increased concerns about inflation after Russian Deputy Prime
Minister Alexander Novak said Russia will cut oil production by
500,000 barrels per day.
Investors are pricing in expectations for higher inflation
as the jobs market remains strong. Breakeven rates on five-year
Treasury Inflation-Protected Securities were at
2.50% on Friday, or 2.50% per annum for five years. This is up
from 2.33% before the jobs data on Feb. 2, and from 2.13% on
Jan. 18.
Feb. 10, Friday at 3:09 p.m. New York/2009 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 4.6475 4.7656 0.025
Six-month bills 4.745 4.9265 -0.002
Two-year note 99-70/256 4.5149 0.006
Three-year note 99-112/256 4.2015 0.023
Five-year note 98-20/256 3.9297 0.049
Seven-year note 97-212/256 3.8584 0.055
10-year note 97-244/256 3.7473 0.064
20-year bond 100-124/256 3.964 0.067
30-year bond 96-88/256 3.8311 0.076
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 29.75 1.75
spread
U.S. 3-year dollar swap 17.50 0.25
spread
U.S. 5-year dollar swap 4.50 -0.25
spread
U.S. 10-year dollar swap -2.25 -0.75
spread
U.S. 30-year dollar swap -39.00 -1.75
spread
(Reporting by Matt Tracy; Additional reporting by Karen
Brettell; Editing by Marguerita Choy)
