TREASURIES-US yields slide as data adds to Fed rate pause hopes

Kitco Media
By Reuters
Published:
Updated:
Reuters
(Adds comment and data, updates prices) By Herbert Lash NEW YORK, April 5 (Reuters) - Treasuries yields slid further on Wednesday after reports on private payrolls and the U.S. services sector pointed to a cooling economy and added to market speculation that the Federal Reserve might pause its hiking of interest rates in May. The U.S. services sector slowed more than expected in March as demand cooled, while a measure of prices paid by services businesses fell to the lowest in nearly three years, adding to growing market fears of a recession later this year. Earlier, an ADP National Employment report showed private employment increased by 145,000 jobs last month as U.S. private employers hired far fewer workers than expected in March, suggesting the labor market was cooling. Data for February was revised higher to show 261,000 jobs were added instead of 242,000 as previously reported.


The two-year Treasury yield, which typically moves in step with interest rate expectations, fell 13 basis points to 3.704%, and the yield on benchmark 10-year notes slid 4.7 basis points to 3.290%.


Both notes were poised to close at lows last seen in September as safe-haven buying pushed bond prices, which move opposite to their yields, higher. "The market is again getting more fearful of recession and is pricing in Fed rate cuts later in the year. The market just might talk itself into recession; we’ll see," said Kim Rupert , managing director of global fixed income at Action Economics in San Francisco. "Some breaks of key technical factors are adding to the slide in yields. It's like a snowball rolling, it's got some momentum behind it," she said. The market now is waiting for the U.S. unemployment report on Friday to further confirm the labor market is cooling, a major requisite in the Fed's fight to curb inflation. "As a precursor for Friday's report, the incremental information this week has been a net negative," said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets in New York. "We're finally getting confirmation that the cumulative impact of the prior rate hikes is starting to flow through to the realized data," he said. On Monday, the Institute for Supply Management (ISM) survey showed U.S. manufacturing activity slumped in March to the lowest level in nearly three years as new orders plunged. Tuesday's data showed U.S. job openings dropped to their lowest level in nearly two years in February, according to the monthly Job Openings and Labor Turnover Survey, or JOLTS report.


Futures priced in a 39.1% likelihood that the Fed raises its target rate by 25 basis points on May 3 when policymakers conclude a two-day meeting, down from 59.7% on Monday, CME's FedWatch Tool showed.


Chances the Fed cuts rates by year's end also rose, with the outlook for the U.S. central bank's target rate falling below 4.0% in December. . The yield on the 30-year Treasury bond was down 2.1 basis points to 3.573%.


A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes , seen as an indicator of economic expectations, was at -41.2 basis points.


The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.357%. The 10-year TIPS breakeven rate was last at 2.229%, indicating the market sees inflation averaging about 2.2% a year for the next decade, or basically in line with the Fed's target for inflation. The U.S. dollar five years forward inflation-linked swap , seen by some as a better gauge of inflation expectations due to possible distortions caused by the Fed's quantitative easing, was last at 2.414%.
April 5 Wednesday 10:52 a.m. New York / 1452 GMT Price Current Net Yield % Change (bps) Three-month bills 4.7025 4.8252 -0.060 Six-month bills 4.5775 4.751 -0.056 Two-year note 100-89/256 3.6913 -0.143 Three-year note 103-38/256 3.4883 -0.112 Five-year note 101-114/256 3.3079 -0.080 Seven-year note 101-252/256 3.3044 -0.068 10-year note 101-212/256 3.2812 -0.056 20-year bond 102-216/256 3.6718 -0.043 30-year bond 100-244/256 3.5727 -0.021
DOLLAR SWAP SPREADS


Last (bps) Net


Change


(bps)
U.S. 2-year dollar swap 32.00 -0.25
spread
U.S. 3-year dollar swap 16.25 -0.75
spread
U.S. 5-year dollar swap 5.75 -0.25
spread
U.S. 10-year dollar swap -1.00 0.00
spread
U.S. 30-year dollar swap -41.50 0.50
spread



(Reporting by Herbert Lash; Editing by Tomasz Janowski and Jonathan Oatis)

Messaging: herb.lash.reuters.com@reuters.net))
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