TREASURIES-U.S. yields drift higher in choppy market ahead of inflation data

Kitco Media
By Reuters
Published:
Updated:
Reuters
By Gertrude Chavez-Dreyfuss NEW YORK, April 11 (Reuters) - U.S. Treasury yields edged higher in mostly uneven trading on Tuesday, with no real conviction in the moves, as investors geared up for Wednesday's highly-anticipated inflation report that should determine the future path of interest rates. U.S. yields have stayed higher ever since non-farm payrolls data showed surprising resilience amid the Federal Reserve's multiple rate hikes, the round of layoffs in the tech sector, and the recent banking crisis. Friday's jobs report for March cemented expectations that the Fed will raise interest rates by 25 basis points at next week's policy meeting.


"Today for the most part is just trying to get through the day for tomorrow, with the CPI data, the biggest driver of the week," said Tom Simons, U.S. economist, at Jefferies in New York. "It's really hard to put together a case for a strong position before that data. That's why you're seeing a little wiggle in yields where they were a little bit lower overnight and into the open, but backed off a little bit to trade more or less unchanged." The report on the U.S. consumer price index could reinforce rate hike expectations, analysts said, even though Wall Street economists see inflation slowing down. Headline inflation for March is expected to rise 0.2%, from a gain of 0.4% in February, while that for the core is seen climbing 0.4%, according to a Reuters poll. "There is some marginal upside risk to CPI," Simons said. The trend that has been in place recently suggests that we're not going to see many minus signs in the components. We are still going to see firm service inflation, with housing inflation firm as well." New York Fed President John Williams further added to the rate-hike chorus on Tuesday. He said the Fed raising its benchmark interest rate only once more and in a 25-bp increase is a useful starting point but the central bank's policy path will depend on incoming data. In late morning trading, the yield on 10-year Treasury notes was up 2.2 bps at 3.437%.


U.S. 30-year yields rose


0.9


bps to


3.636 %.


A widely-tracked part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes , remained inverted at -60.1 bps. The inversion of this yield curve typically precedes recession. The curve has been inverted since July last year. The U.S. two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, advanced 2.7 bps to 4.035%.


Ahead of CPI, breakeven rates from three years and up were all higher on the day.


The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.335, up 1.6 bps, indicating the market sees inflation averaging this percentage over the next five years.


Also this week, the Treasury will auction $90 billion in U.S. three-year, 10-year, and 30-year maturities. Later on Tuesday, the government will sell $43 billion in three-year notes.


April 11 Tuesday 10:54AM New York / 1454 GMT Price Current Net Yield % Change (bps) Three-month bills 4.915 5.0467 0.045 Six-month bills 4.79 4.9907 0.008 Two-year note 99-175/256 4.0433 0.035 Three-year note 102-62/256 3.8064 0.035 Five-year note 100-86/256 3.5504 0.031 Seven-year note 100-200/256 3.4975 0.027 10-year note 100-120/256 3.4431 0.028 20-year bond 101-156/256 3.7589 0.015 30-year bond 99-152/256 3.6473 0.020
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 17.50 0.50
spread
U.S. 5-year dollar swap 8.00 0.50
spread
U.S. 10-year dollar swap -0.25 -0.50
spread
U.S. 30-year dollar swap -42.25 -0.75
spread



(Reporting by Gertrude Chavez-Dreyfuss; Editing by Chizu Nomiyama)

Messaging: rm://gertrude.chavez.reuters.com@reuters.net))
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