TREASURIES-Two-year yields hit one-week highs on banking optimism

By Karen Brettell NEW YORK, March 30 (Reuters) - Two-year Treasury yields rose to one-week highs on Thursday as investors grew more confident that recent stress in the banking sector would be contained, but remained cautious about the impact that bank failures would have on the economy. Treasury yields have stabilized following sharp drops after the collapse of Silicon Valley Bank and Signature Bank earlier this month. However, “nobody wants to make too big of a move in either direction because we don’t know if another shoe’s going to drop, or if there’s going to be an economic change ... are institutions going to pull back from lending? Things like that may push us towards a recession,” said Ellis Phifer, managing director of fixed income research at Raymond James in Memphis, Tennessee. Personal consumption expenditures (PCE) data on Friday is the next major U.S. economic focus. That is expected to show core prices rose by 0.4% in February and posted an annual increase of 4.7%. Data on Thursday showed the number of Americans filing new claims for unemployment benefits rose moderately last week, showing no signs yet that tightening credit conditions were having a material impact on the labor market, which remains tight.

Benchmark 10-year yields gained two basis points to 3.581%. They are up from a six-month low of 3.285% reached on Friday and are holding below a 15-year high of 4.338% on Oct. 21.

Two-year yields rose eight basis points to 4.155%, the highest since March 22. They are 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 57 basis points. Fed funds futures traders are now pricing in a 55% chance of a 25 basis points interest rate increase at the Federal Reserve’s May 2-3 meeting.

March 30 Thursday 9:30AM New York / 1330 GMT Price Current Net Yield % Change (bps) Three-month bills 4.665 4.7856 0.013 Six-month bills 4.7025 4.8966 0.002 Two-year note 99-120/256 4.1545 0.075 Three-year note 101-230/256 3.9379 0.055 Five-year note 99-152/256 3.7148 0.040 Seven-year note 99-212/256 3.6531 0.029 10-year note 99-84/256 3.581 0.015 20-year bond 99-112/256 3.9157 -0.001 30-year bond 97-124/256 3.7658 -0.012
DOLLAR SWAP SPREADS

Last (bps) Net

Change

(bps)
U.S. 2-year dollar swap 31.75 -0.75
spread
U.S. 3-year dollar swap 16.50 -0.50
spread
U.S. 5-year dollar swap 5.50 -0.50
spread
U.S. 10-year dollar swap -1.25 -0.25
spread
U.S. 30-year dollar swap -46.50 0.25
spread

(Reporting by Karen Brettell Editing by Jonathan Oatis and Mark Potter)