By Davide Barbuscia
NEW YORK, March 1 (Reuters) - U.S. Treasury yields rose
on Wednesday on higher interest rate fears, with benchmark
10-year government bond yields hitting 4% and the two-year yield
at its highest since 2007.
A string of overseas data as well as U.S. manufacturing data
continued to fuel concerns that interest rates could keep
climbing for longer than anticipated. Yields, which rise as bond
prices fall, have been on the up last month as strong economic
data supported expectations that the U.S. Federal Reserve will
tighten financial conditions more aggressively to fight
inflation.
Data on Wednesday showed German inflation accelerated in
February, pushing Germany's two-year government bond yields to their highest since October 2008. That followed
February numbers this week showing price pressures surged more
than expected across France and Spain too.
In the U.S., manufacturing contracted for a fourth straight
month in February, but there were signs that factory activity
was starting to stabilize. Treasury yields jumped after the Institute for Supply
Management (ISM) manufacturing sector data, with the benchmark
10-year yield hitting 4% for the first time since
November. Two-year yields , which more closely reflect
monetary policy expectations, went as high as 4.9% - their
highest since 2007.
"What we're seeing is a passing of the baton from a U.S.-led
yields move to one that is being driven by Europe," said Eric
Theoret, global macro strategist at Manulife Investment
Management. "We're going to have higher yields overall, with
probably a bit more velocity for Europe," he added.
Meanwhile China's manufacturing activity expanded at the
fastest pace in more than a decade last month. While cheered by
stock markets, the data showing the impact of China's post-COVID
economic reopening could stoke global inflationary concerns.
"The boost this provides to prices will be most apparent in
the commodity space, and it's through this channel that we
expect inflation in the U.S. will be most directly impacted,"
BMO Capital Markets analysts Ian Lyngen and Benjamin Jeffery
said in a report on Wednesday.
Fed funds futures on Wednesday were pricing for the Fed to
raise rates by 25 basis points at the U.S. central bank's next
meeting in March, but expectations of a larger 50 basis points
hike increased, according to CME Group data.
Minneapolis Federal Reserve Bank President Neel Kashkari
said on Wednesday he was "open-minded" on either a 25-basis
point or a 50-basis point rate hike.
March 1 Wednesday 10:41AM New York / 1541 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 4.735 4.8589 0.002
Six-month bills 4.9425 5.1536 0.024
Two-year note 99-129/256 4.8889 0.092
Three-year note 98-86/256 4.6075 0.105
Five-year note 98-206/256 4.2682 0.100
Seven-year note 98-248/256 4.1715 0.102
10-year note 95-240/256 3.9984 0.084
20-year bond 96-8/256 4.1698 0.060
30-year bond 93-244/256 3.9719 0.042
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 33.75 -1.25
spread
U.S. 3-year dollar swap 19.25 -1.50
spread
U.S. 5-year dollar swap 7.75 -0.75
spread
U.S. 10-year dollar swap 0.75 0.00
spread
U.S. 30-year dollar swap -39.00 0.75
spread
(Reporting by Davide Barbuscia; Editing by Alex Richardson)
Messaging: davide.barbuscia.reuters.com@reuters.net))
