U.S. Treasury yields declined on Monday as some investors saw recent weakness in U.S. government bonds as a buying opportunity, but fears of higher interest rates continued to be a top concern.
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, 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. 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. Economic data this month reflected still tight jobs markets and inflation remaining sticky, leading Fed funds futures traders to bet on higher rates, which in the U.S. are now seen peaking in September at 5.4%, up from 4.58% now. There is also less conviction that the Fed may cut rates later this year, with Morgan Stanley now expecting it to deliver its first interest rate cut in March 2024, against a previous forecast of a December move. "The sentiment has completely reversed on rates," said Doug Fincher, a portfolio manager at Ionic Capital Management. "We're trying to not get too caught up in the day-to-day moves. The reality is that inflation is still sticky ... inflation volatility is going to stay high," he said.
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. Treasury yields inched up after the release.
U.S. Treasury 10-year yields were last seen at
3.921%, down nearly three basis points from Friday.
Two-year yields, which more closely track investor
expectations on the path of interest rates, were about one point
lower at 4.792%. On Friday, they had hit three-and-a-half-month
highs after data showing that U.S. consumer spending rebounded
sharply in January and inflation accelerated.
February 27 Monday 3:00PM New York / 2000 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 4.685 4.8038 -0.029
Six-month bills 4.9 5.0907 -0.019
Two-year note 99-175/256 4.7928 -0.012
Three-year note 98-152/256 4.5116 -0.019
Five-year note 99-56/256 4.1747 -0.035
Seven-year note 99-136/256 4.0776 -0.033
10-year note 96-140/256 3.9219 -0.027
20-year bond 96-228/256 4.1046 -0.020
30-year bond 94-216/256 3.9189 -0.019
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 34.75 0.75
spread
U.S. 3-year dollar swap 20.00 0.00
spread
U.S. 5-year dollar swap 7.75 0.50
spread
U.S. 10-year dollar swap 0.25 0.50
spread
U.S. 30-year dollar swap -39.75 0.50
spread
(Reporting by Davide Barbuscia; Editing by Susan Fenton and
Andrea Ricci)
