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Yields have fallen 'too far, too quickly' -analyst
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Rate futures price in 25 bps hike in May
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Banking stress still a focus for bond investors
By Gertrude Chavez-Dreyfuss NEW YORK, April 10 (Reuters) - U.S. Treasury yields rose on Monday in holiday-thinned trading, as investors continued to price in a 25 basis-point hike by the Federal Reserve at next month's policy meeting following a still-strong U.S. jobs report that offset other weak economic data released earlier last week. Volume was light with European and UK markets closed for Easter Monday. Market participants said overnight volume in Treasuries was roughly about 30% of the average. "You're seeing a higher probability of a hike. People are parsing through the nonfarm payrolls from Friday for some nuance," said Zachary Griffiths, senior investment grade strategist at CreditSights in Charlotte, North Carolina.
"The drift higher in yields is consistent with our view for what we expect for the remainder of the year. We think yields have fallen too far, too quickly and the market is pricing in far too aggressive rate cuts in the second half of this year," he added.
Friday's U.S. nonfarm payrolls report showed an increase of 236,000 jobs last month, while the February data was revised higher to show 326,000 jobs were added instead of the 311,000 reported previously.
Prior to the jobs data, the rate futures market had been betting that the Fed would pause at the May meeting. On Monday, the market priced in a 74% chance the Fed will raise rates by 25 bps. In afternoon trading, the yield on 10-year Treasury notes was up 3.4 basis points (bps) at 3.417%.
U.S. 30-year Treasury bond yields rose 2.5 bps to 3.628%.
A closely monitored part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes deepened its inversion to -61.4 bps and was last at -59.1 bps.
An inverted yield curve, a scenario in which yields on short-dated debt are higher than those on longer-dated ones, has predicted eight of the last nine recessions.
U.S. two-year yields , which tend to reflect interest rate expectations, climbed to 4.006%.
Bond investors continue to monitor the state of the banking system, with signs that financial stress was easing. Fed data on assets and liabilities of U.S. commercial banks showed that deposits at all commercial banks rose to $17.35 trillion in the week ended March 29, on a nonseasonally-adjustedsted basis, from a downwardly revised $17.31 trillion a week earlier. It was the first increase since the start of March and a temporary reversal, at least for now, from a record flight of deposits triggered by the collapses of Silicon Valley Bank and Signature Bank toward the middle of last month. Deposit rates, with the current average savings rate at roughly 0.2% per annum, have not kept up with the surge in the fed funds rate that came with multiple Fed hikes. That low deposit rate has led to deposit outflows.
Data also showed bank borrowings from the Fed eased last week. Total lending at the three main programs aimed at bolstering bank liquidity stood at $323.3 billion as of Wednesday last week, down from $332.7 billion on March 29. "It's not clear that the banking issues have gone away. The Fed has come in and tried to separate financial stability issues from monetary policy," said Gregory Faranello, head of U.S. rates at AmeriVet Securities in New York. "The money the Fed injected into the banking system is not going to flow out into credit creation. That is just to glue the whole thing together. When you put that in the blender, there's expectation of a recession."
April 10 Monday 3:07 PM New York / 1907 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 4.86 4.9854 0.038
Six-month bills 4.7775 4.9604 0.007
Two-year note 99-193/256 4.0056 0.034
Three-year note 102-88/256 3.7706 0.034
Five-year note 100-122/256 3.5194 0.034
Seven-year note 100-244/256 3.4697 0.037
10-year note 100-176/256 3.4168 0.034
20-year bond 101-200/256 3.7467 0.027
30-year bond 99-240/256 3.6283 0.025
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 32.50 0.00
spread
U.S. 3-year dollar swap 17.00 0.50
spread
U.S. 5-year dollar swap 7.50 0.75
spread
U.S. 10-year dollar swap 0.25 0.25
spread
U.S. 30-year dollar swap -41.50 -0.75
spread
(Reporting by Gertrude Chavez-Dreyfuss; Editing by Chizu Nomiyama and Jonathan Oatis)
Messaging: rm://gertrude.chavez.reuters.com@reuters.net))