(Adds data, auction results, comments from Fed's Barr, updates
prices)
By Karen Brettell
NEW YORK, March 29 (Reuters) - Most U.S. Treasury yields
were higher 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.
Data on Wednesday showed that contracts to buy U.S.
previously owned homes increased for a third straight month in
February, raising cautious optimism that the housing market
slump could be bottoming out.
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. The Fed will make its interest rate decisions from here on a
meeting-to-meeting basis and will take financial conditions into
account in that judgment alongside other factors, Fed Vice Chair
for Supervision Michael Barr said on Wednesday.
Benchmark 10-year yields were little changed on
the day at 3.570%. 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 3 basis points to
4.089%, 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 52 basis points.
The Treasury Department saw soft demand for a $35 billion
auction of seven-year notes on Wednesday, the final sale of $120
billion in short- and intermediate-dated debt supply this week.
The notes sold at a high yield of 3.626%, around a basis
point above where they had traded before the sale. The
bid-to-cover ratio was 2.39 times, the lowest since November. 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 3:02PM New York / 1902 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 4.64 4.7603 -0.011
Six-month bills 4.7 4.8946 0.046
Two-year note 99-152/256 4.0886 0.027
Three-year note 102-8/256 3.891 0.022
Five-year note 99-192/256 3.6802 0.026
Seven-year note 102-40/256 3.6442 0.020
10-year note 99-108/256 3.5696 0.002
20-year bond 99-96/256 3.9203 0.004
30-year bond 97-64/256 3.7792 -0.006
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 32.25 0.25
spread
U.S. 3-year dollar swap 17.25 1.25
spread
U.S. 5-year dollar swap 6.00 0.25
spread
U.S. 10-year dollar swap -1.00 0.25
spread
U.S. 30-year dollar swap -46.75 1.25
spread
(Reporting by Karen Brettell; editing by Jonathan Oatis)
