By Karen Brettell
NEW YORK, March 29 (Reuters) - Treasury yields rose on
Wednesday as investors continued to evaluate whether recent
banking stresses will be contained and what tighter lending
standards emanating from recent bank failures will mean for
Federal Reserve policy.
Yields have risen from six-month lows reached on Friday as
stress in the banking sector appeared to subside, following the
collapse of Silicon Valley Bank and Signature Bank earlier this
month.
Greater confidence in the banking system has also increased
the likelihood that the Fed will in turn be able to implement
another interest rate increase as it focuses on bringing down
inflation, but a lot can happen before the U.S. central bank’s
May 2-3 meeting.
“We have entered an extended period of uncertainty for the
economic and policy outlook. The reality is that there’s still a
great deal of unknowns linked to the regional and global banking
sector,” said Ian Lyngen, head of U.S. rates strategy at BMO
Capital Markets in New York.
“For the time being we appear to be in a moment of calm.
Risk assets seem to be performing reasonably well. But I think
they’re responding more to the potential for the contagion to be
ultimately limited and contained, whereas monetary policy makers
are appropriately cautious given what could or could not
transpire over the next several weeks,” Lyngen said.
Personal Consumption Expenditures (PCE) data on Friday is
the next major U.S. economic focus while investors will also be
watching for any headlines relating to stress in the banking
sector.
Fed funds futures traders are now pricing in a 47% chance of
a 25 basis points increase in May, after seeing it as a long
shot late last week. Benchmark 10-year yields rose 4 basis points to
3.606%. They are up from a six-month low of 3.285% reached on
Friday, but remain below a 15-year high of 4.338% on Oct. 21.
Two-year yields rose 7 basis points to 4.130%, up
from a six-month low of 3.555% on Friday but below the almost
16-year high of 5.084% hit on March 8.
The closely watched yield curve between two-year and 10-year
notes was last at minus 53 basis points.
The Treasury Department will sell $35 billion in seven-year
notes on Wednesday, the final sale of $120 billion in short- and
intermediate-dated debt supply this week. The Treasury saw solid
demand for a $43 billion sale of five-year notes on Tuesday, but
weak interest in a $42 billion auction of two-year notes on
Monday.
March 29 Wednesday 9:20AM New York / 1320 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 4.6275 4.7473 -0.024
Six-month bills 4.7075 4.9026 0.054
Two-year note 99-132/256 4.1298 0.068
Three-year note 101-230/256 3.9385 0.069
Five-year note 99-146/256 3.72 0.066
Seven-year note 101-244/256 3.6773 0.053
10-year note 99-32/256 3.6057 0.038
20-year bond 98-252/256 3.949 0.033
30-year bond 96-184/256 3.8097 0.025
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 31.75 -0.25
spread
U.S. 3-year dollar swap 15.75 -0.25
spread
U.S. 5-year dollar swap 5.50 -0.25
spread
U.S. 10-year dollar swap -2.25 -1.00
spread
U.S. 30-year dollar swap -48.75 -0.75
spread
(Reporting by Karen Brettell; editing by Jonathan Oatis)
