U.S. Treasury yields declined on Monday as some investors saw recent weakness in U.S. government bonds, caused by fears of higher interest rates, as a buying opportunity. Treasury yields, which move inversely to prices, have been rising steeply over the past few weeks as a flurry of strong economic data supported expectations that the U.S. Federal Reserve will need to raise interest rates more than previously expected to fight stubbornly high inflation. Initially yields continued their ascent in early trade on Monday after Germany's benchmark 10-year yield hit a new near 12-year high as markets continued to reposition for more persistent inflation and more central bank rate increases.
But they changed course around the release of U.S. data on durable goods orders in January, which dropped 4.5% month on month, against expectations of a 4% decline. "Immediately before the release, we saw yields drop and since the data the price action has extended in steepening fashion," said Benjamin Jeffery, a strategist on the U.S. Rates Strategy Team at BMO Capital Markets. "We remain cautiously bullish ahead of month-end and another round of dip buying seen in duration this morning," he said. While orders for durable goods fell more than expected last month, new orders for key U.S.-manufactured capital goods increased more than expected and shipments of so-called core goods rebounded, suggesting that business spending on equipment picked up at the start of the first quarter. Orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, rose 0.8% last month, the Commerce Department said on Monday. The data rounded off "a month of strong activity releases and suggests business investment will hold up a bit better in the first quarter than we had thought," Capital Economics said in a note. Separately on Monday the National Association of Realtors (NAR) said its Pending Home Sales Index, based on signed contracts, jumped 8.1% last month, the biggest increase since June 2020. Economists polled by Reuters had forecast contracts, which become sales after a month or two, rising 1.0%.
Treasury yields inched up after the release. U.S. Treasury 10-year yields were last seen at 3.918%, down about three basis points from Friday. Two-year yields, which more closely track investor expectations on the path of interest rates, were almost unchanged at 4.796%. On Friday, they hit three-and-a-half-month highs on the back of data showing that U.S. consumer spending rebounded sharply in January and inflation accelerated.
February 27 Monday 10:15AM New York / 1515 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 4.7075 4.8272 -0.006
Six-month bills 4.915 5.1067 -0.003
Two-year note 99-173/256 4.7969 -0.008
Three-year note 98-150/256 4.5145 -0.016
Five-year note 99-52/256 4.1783 -0.032
Seven-year note 99-140/256 4.0751 -0.036
10-year note 96-148/256 3.918 -0.031
20-year bond 96-244/256 4.0999 -0.025
30-year bond 94-200/256 3.9226 -0.015
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 35.00 1.00
spread
U.S. 3-year dollar swap 20.50 0.50
spread
U.S. 5-year dollar swap 7.75 0.50
spread
U.S. 10-year dollar swap 0.50 0.75
spread
U.S. 30-year dollar swap -40.00 0.25
spread
(Reporting by Davide Barbuscia; Editing by Susan Fenton)
Messaging: davide.barbuscia.reuters.com@reuters.net))