TREASURIES-US yields march higher as tight labor data fuels inflation scare

Kitco Media
By Reuters
Published:
Updated:
Reuters
(Updates prices, adds details) By Davide Barbuscia NEW YORK, March 2 (Reuters) - U.S. Treasury yields continued to climb on Thursday after strong labor data reinforced concerns that the U.S. Federal Reserve will need to raise interest rates further to cool the economy. Data from Europe had already pushed U.S. government bond yields higher as stickier-than-expected euro zone inflation numbers supported expectations that interest rates would go higher and stay there for longer. Strong jobless claims data in the U.S., where the number of Americans filing new claims for unemployment benefits fell again last week, reinforced that narrative on Thursday, as well as data showing that U.S. labor costs grew faster than initially thought in the fourth quarter.


Yields, which move inversely to bond prices, had already touched new highs on Wednesday and climbed further on Thursday. "The march higher has been relentless and each incremental data point is just helping the momentum continue," said Matthew Miskin, co-chief investment strategist at John Hancock Investment Management. "In addition to the very tight labor data ... we also have unit labor costs coming in hotter than expected, so if wage inflation is also ticking back up, combined with broader inflation ticking back up, that is in essence spooking the bond market that inflation is getting more entrenched," he said. Benchmark 10-year yields were trading above 4% on Thursday and were last seen at 4.075%, about eight basis points higher on the day. Two-year yields , which are more closely linked to monetary policy expectations, touched an intra-day high of 4.944% - an over 15-year high. On the long end, 30-year bond yields also broke above 4% for the first time since mid-November last year, and were last seen at 4.023%. Expectations that the U.S. central bank may need to raise rates by 50 basis points at its next meeting this month stood at about 30%, 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 4.75%-5%% range was about 70%, instead. "The economy is still looking robust and that should keep the Fed’s hawkish speak going. Rates will undoubtedly be higher for longer, but the risks of larger than quarter-point rises may be back on the table," Edward Moya, senior market analyst at OANDA, said in a note. Atlanta Federal Reserve President Raphael Bostic, however, said on Thursday he favored quarter-point rate increases, as the impact of higher rates must still be fully felt by the economy.


March 2 Thursday 3:00PM New York / 2000 GMT Price Current Net Yield % Change (bps) Three-month bills 4.7325 4.8557 -0.011 Six-month bills 4.9325 5.1422 -0.014 Two-year note 99-122/256 4.9038 0.015 Three-year note 98-58/256 4.6484 0.038 Five-year note 98-140/256 4.3267 0.062 Seven-year note 98-136/256 4.2449 0.077 10-year note 95-84/256 4.0754 0.079 20-year bond 95-36/256 4.2381 0.073 30-year bond 93-24/256 4.0237 0.071
DOLLAR SWAP SPREADS


Last (bps) Net


Change


(bps)
U.S. 2-year dollar swap 33.75 -0.50
spread
U.S. 3-year dollar swap 19.75 0.00
spread
U.S. 5-year dollar swap 8.25 -0.25
spread
U.S. 10-year dollar swap 1.00 0.00
spread
U.S. 30-year dollar swap -39.50 -0.50
spread



(Reporting by Davide Barbuscia; Editing by Andrea Ricci and Deepa Babington)

Messaging: davide.barbuscia.reuters.com@reuters.net))
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