The yield on benchmark 10-year Treasury notes hit a fresh 11-week high of 3.983%, while the rates-sensitive
two-year note rose close to an almost four-month high
before easing to trade almost flat.
A few more Fed rate hikes are in the cards as the market
comes to realize the days of 2% inflation in the near term are
over, said David Petrosinelli, senior trader at InspereX,
referring to the U.S. central bank's annual inflation target.
"The market's view on what the Fed may do by the end of
the year, beginning of next year has really changed quite a bit
from where we were five to six weeks ago," he said.
"But more importantly, how long are those (rate hikes)
going to last and how durable are those rate hikes going to be
and will the Fed actually be forced to cut rates?"
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 an easing in gains in U.S. home prices in December, with a 20-city composite index posting a 4.6% year-over-year gain, down from 6.8% in the previous month, according to the S&P CoreLogic Case-Shiller Indices.
In another report, the Conference Board's consumer confidence index fell to 102.9 from 106.0 in January. The survey showed consumers' reluctance to buy big-ticket items like motor vehicles and household appliances over the next six months.
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 rates and its efforts to slow inflation to the central bank's target. Traders expect the U.S. central bank to raise its benchmark overnight interest rate to about 5.4% in June and July, with a minor decline by December, futures markets show . That's a shift from early February, when they priced the peak rate under 5.0% with rate cuts by year's end. The 10-year yield was down 1.6 basis points at 3.906%, while the two-year yield rose 0.6 basis points to 4.799%. Two-year yields were up 58 basis points in February, their largest monthly rise since September, while 10-year yields rose 38 basis points, also the highest monthly gain since September. The gap between the two- and 10-year yields , a harbinger of a looming recession when shorter duration rates are higher than longer-dated securities, remained deeply inverted at
-89.5
basis points.
The yield on the 30-year Treasury bond was
up 0.2 basis points to
3.921
%.
The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.651%. The 10-year TIPS breakeven rate was last at 2.416%, 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 2.534%.
Feb. 28 Tuesday 3:36 p.m. New York / 2036 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 4.72 4.844 -0.033
Six-month bills 4.9275 5.1376 -0.008
Two-year note 99-172/256 4.7992 0.006
Three-year note 98-156/256 4.5063 -0.006
Five-year note 99-68/256 4.1643 -0.009
Seven-year note 99-154/256 4.066 -0.012
10-year note 96-172/256 3.9064 -0.016
20-year bond 96-244/256 4.0999 -0.005
30-year bond 94-208/256 3.9207 0.002
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap spread 35.00 0.25
U.S. 3-year dollar swap spread 20.75 0.75
U.S. 5-year dollar swap spread 8.50 0.50
U.S. 10-year dollar swap spread 0.75 0.50
U.S. 30-year dollar swap spread -40.00 -0.25
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Case Shiller ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Herbert Lash; Editing by Marguerita Choy and Paul Simao)
Messaging: herb.lash.reuters.com@reuters.net))