TREASURIES-U.S. yields edge up on view rates to stay higher, longer

Kitco Media
By Reuters
Published:
Updated:
Reuters
By Herbert Lash NEW YORK, Feb 28 (Reuters) - Treasury yields edged higher on Tuesday in anticipation the U.S. Federal Reserve will keep interest rates higher for longer to tame rising inflation as the market awaits February data on the consumer price index and strong labor market early next month.


The yield on benchmark 10-year Treasury notes hit a fresh 11-week high of 3.983%, while the rate-sensitive two-year note rose close to an almost four-month high before easing to trade almost flat. The market is going through a bit of a consolidation phase until the next round of economic data, said Steven Ricchiuto, U.S. chief economist at Mizuho Securities USA LLC in New York. "Markets have pushed from the overbought to a bit of an oversold condition. And that's kind of where we are at this particular juncture," Ricchiuto said. "It's not surprising to me that we've kind of pushed up towards the upper end of our range, which is 3.70% to 4.20%" for the 10-year Treasury, he said.


Housing data on Tuesday showed gains in U.S. home prices eased in December, with a 20-city composite index posting a 4.6% year-over-year gain, down from 6.8% the previous month, according to the S&P CoreLogic Case-Shiller Indices. The market awaits this month's data for U.S. unemployment on March 10 and the consumer price index on March 14, both of which will influence the Fed's policy on interest rates and its efforts to slow inflation to the central bank's 2% target pace. Traders now expect the Fed to raise rates to about 5.4% in July, with only a minor decline by December, futures markets show . In early February, the market envisaged rates rising to a peak under 5.0%, with several rate cuts year's end. "The market is coming to realize that the 2% inflation days in the near term are over," said David Petrosinelli, senior trader at InspereX. "The Fed can't be in the business of cutting rates when inflation continues to hang where it's hanging."


The 10-year note's yield was up 2.9 basis points at 3.951%, while the two-year yield was up 0.8 basis points at 4.801%. Tuesday The yield on the 30-year Treasury bond was


up 2.2 basis points to


3.941 %.


The yield curve measuring the gap between yields on two- and 10-year Treasury notes , a harbinger of a looming recession when short-end rates are higher than longer-dated securities, was inverted at -85.4 basis points.


The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.608%. The 10-year TIPS breakeven rate was last at 2.397%, indicating the market sees inflation averaging about 2.4% a year for the next decade. The U.S. dollar 5 years forward inflation-linked swap , seen by some as a better gauge of inflation expectations due to possible distortions caused by the Fed's quantitative easing, was last at 2.537%.


Feb. 28 Tuesday 10:50 a.m. New York / 1550 GMT Price Current Net Yield % Change (bps) Three-month bills 4.725 4.8492 -0.028 Six-month bills 4.925 5.1349 -0.011 Two-year note 99-171/256 4.8012 0.008 Three-year note 98-144/256 4.5235 0.011 Five-year note 99-32/256 4.1959 0.023 Seven-year note 99-92/256 4.1062 0.028 10-year note 96-80/256 3.9512 0.029 20-year bond 96-140/256 4.1306 0.026 30-year bond 94-112/256 3.943 0.024
DOLLAR SWAP SPREADS


Last (bps) Net


Change


(bps)
U.S. 2-year dollar swap spread 35.25 0.50
U.S. 3-year dollar swap spread 20.75 0.75
U.S. 5-year dollar swap spread 8.25 0.25
U.S. 10-year dollar swap spread 0.75 0.50
U.S. 30-year dollar swap spread -39.75 0.00




(Reporting by Herbert Lash Editing by Marguerita Choy)

Messaging: herb.lash.reuters.com@reuters.net))
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