The two-year Treasury yield, which typically moves in step with interest rate expectations, fell 9.3 basis points to 3.741%, and the yield on 10-year notes slid 3.5 basis points to 3.302%. "The market has been on guard for weak economic data for some time, and we're finally getting confirmation that the cumulative impact of the prior rate hikes is starting to flow through to the realized data," said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets in New York. 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," Lyngen 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 41.2% 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 . The yield on the 30-year Treasury bond was down 1.9 basis points to 3.575%.
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 -43.9 basis points.
The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.387%. The 10-year TIPS breakeven rate was last at 2.245%, indicating the market sees inflation averaging about 2.3% a year for the next decade, or basically in line with the Fed's target for inflation. The U.S. dollar 5 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 2.427%.
April 5 Wednesday 9:39 a.m. New York / 1339 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 4.63 4.7468 -0.055
Six-month bills 4.685 4.8754 -0.012
Two-year note 99-208/256 3.9738 -0.088
Three-year note 102-118/256 3.7343 -0.096
Five-year note 100-122/256 3.5199 -0.091
Seven-year note 100-228/256 3.4803 -0.081
10-year note 100-160/256 3.4245 -0.066
20-year bond 101-88/256 3.778 -0.045
30-year bond 99-176/256 3.6421 -0.046
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap spread 33.50 1.50
U.S. 3-year dollar swap spread 18.25 0.50
U.S. 5-year dollar swap spread 6.00 0.25
U.S. 10-year dollar swap spread -0.75 -0.25
U.S. 30-year dollar swap spread -42.75 1.75
(Reporting by Herbert Lash Editing by Tomasz Janowski)
Messaging: herb.lash.reuters.com@reuters.net))