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. Five-year Treasury yields also rose to their highest since November on Wednesday, gaining over nine basis points on the day to 4.261%. "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," Theoret added. 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. The U.S. dollar 5 years forward inflation-linked swap , a gauge of inflation expectations, was last at 2.592%, up from 2.491% on Tuesday. 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. The probability that the Fed's policy rate, currently set in the 4.5% to 4.75% range, could go up to a 5%-5.25% range this month stood at about 30%, up from a 24% probability on Tuesday.
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 3:00PM New York / 2000 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 4.73 4.8537 -0.003
Six-month bills 4.945 5.1563 0.026
Two-year note 99-129/256 4.8889 0.092
Three-year note 98-86/256 4.6075 0.105
Five-year note 98-214/256 4.2612 0.093
Seven-year note 99 4.1662 0.096
10-year note 95-252/256 3.9925 0.079
20-year bond 96-32/256 4.1626 0.053
30-year bond 94-72/256 3.9523 0.022
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 34.25 -0.75
spread
U.S. 3-year dollar swap 19.75 -1.00
spread
U.S. 5-year dollar swap 8.50 0.00
spread
U.S. 10-year dollar swap 1.00 0.25
spread
U.S. 30-year dollar swap -39.00 0.75
spread
(Reporting by Davide Barbuscia; Editing by Alex Richardson and Will Dunham)
