Shorter-dated U.S. Treasury yields rose on Wednesday, with the two-year on track for its third straight session of gains, as data showed the labor market remained tight and Federal Reserve Chair Jerome Powell kept open the possibility of higher and faster rate hikes. Powell's testimony on Tuesday to the Senate Banking Committee opened the door to a 50 basis point interest rate hike, potentially as soon as the U.S. central bank's next policy announcement on March 22. On Wednesday, Powell stressed to the U.S. House of Representatives Financial Services Committee that no decision had been made by policymakers, with inflation and jobs data yet to be released prior to the Fed meeting. Shorter-dates yields jumped on Tuesday after Powell's comments and continued rising on Wednesday, reaching 5.084% earlier in the day, the highest level since June 15, 2007.
But longer-dated yields dipped again and a closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes , was at a negative 109.2 basis points, its deepest inversion since 1981. Such an inversion is seen as a reliable recession indicator.
"Clearly the mood in the market now is kind of preparing for some more rate hikes, so 50 (basis points) I wouldn't say it's a sure thing but clearly on the table," said Brian Rehling, head of Global Fixed Income Strategy at Wells Fargo Investment Institute in St. Louis.
"We just have this huge inversion in the yield curve and it just keeps getting deeper and there is no way this inversion is getting fixed or moving back to positive territory until the Fed starts cutting rates and that looks to be a long way away, quite frankly."
Yields have steadily climbed in recent weeks after the January jobs report and other economic data pointed to a tight labor market, which increased expectations the Fed would have to maintain its path of rate hikes to curb stubbornly high inflation.
The latest labor market reports on Wednesday from ADP and the Labor Department's Job Openings and Labor Turnover Survey, or JOLTS report, signaled demand for workers remains strong.
The yield on 10-year Treasury notes was down 0.1 basis points at 3.974%. The yield on the 30-year Treasury bond was
down 1.4 basis points at
3.874
%.
The February jobs report, due to be released on Friday, is expected to show nonfarm payrolls increased by 205,000, according to economists polled by Reuters, after the 517,000 jobs reported in January. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was up 5.3 basis points at 5.064%.
A $32 billion auction in 10-year notes on Wednesday was poor, according to market participants, with demand for the debt at 2.35 times the notes on sale. The Treasury Department will auction $18 billion in 30-year bonds on Thursday. The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.554%, after closing at 2.631% on Tuesday. The 10-year TIPS breakeven rate was last at 2.331%, indicating the market sees inflation averaging 2.3% a year for the next decade. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ The race to raise rates ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Chuck Mikolajczak; Editing by Paul Simao, Diane Craft and Richard Chang)
