U.S. business activity unexpectedly rebounded in February, reaching its highest level in eight months. The Fed will release minutes from its Jan. 31 – Feb. 1 meeting on Wednesday, which will be evaluated for any new signs of how high the U.S. central bank is likely to ultimately raise rates. Chairman Jerome Powell’s comments after the meeting had initially been interpreted as dovish as he stressed progress the bank has made in bringing inflation off its peaks. But Fed officials since then have stressed that the battle is not over. “They are back to tough talk on inflation and with the additional economic news coming out that’s been reasonably strong, the bond market’s turned about-face and is pricing in a little bit more risk again,” said Ellis Phifer, managing director, fixed income research, at Raymond James in Memphis, Tennessee. Fed funds futures traders are now pricing for the Fed’s benchmark rate to reach 5.35% in July and end the year at 5.16%. Benchmark 10-year note yields reached 3.951%, the highest since Nov. 10. They are up from a four-month low of 3.321% on Jan. 19. Two-year yields rose as high as 4.725%, the highest since Nov. 8. The yield curve between two-year and 10-year notes remained deeply inverted at minus 77 basis points, indicating concerns over an impending recession. The Treasury market was closed on Monday for the Presidents’ Day holiday. Yields also rose as banks and investors prepared for $140 billion in new coupon-bearing debt this week. This will include $42 billion in two-year notes on Tuesday, $43 billion in five-year notes on Wednesday and $35 billion in seven-year notes on Thursday. This week’s main U.S. economic focus will be personal income and spending for January due on Friday. February 21 Tuesday 10:00AM New York / 1500 GMT Price Current Net Yield % Change (bps) Three-month bills 4.7075 4.8265 0.012 Six-month bills 4.8525 5.0394 0.015 Two-year note 98-232/256 4.7204 0.097 Three-year note 98-208/256 4.4294 0.108 Five-year note 97-14/256 4.1655 0.130 Seven-year note 96-132/256 4.0813 0.132 10-year note 96-88/256 3.9467 0.119 20-year bond 96-132/256 4.1329 0.109 30-year bond 93-212/256 3.9793 0.091
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 30.00 -1.25
spread
U.S. 3-year dollar swap 19.25 0.00
spread
U.S. 5-year dollar swap 5.75 -0.25
spread
U.S. 10-year dollar swap 0.00 0.75
spread
U.S. 30-year dollar swap -40.50 0.75
spread
(Editing by Bernadette Baum)
