*
There is a risk of CPI printing higher -analysts
*
A 25-bps May hike is "useful starting point" -Fed's
Williams
*
Patience needed in hiking rates with bank stress -Fed's
Goolsbee
*
U.S. three-year note auction shows solid results
By Gertrude Chavez-Dreyfuss NEW YORK, April 11 (Reuters) - U.S. Treasury yields crawled 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 the nonfarm payrolls data for March 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 cemented expectations that the Fed will raise interest rates by 25 basis points at next month's policy meeting.
"Everybody's eyes are on CPI (consumer price index) tomorrow. There's a lot of risk that CPI could print higher," said Tom di Galoma, co-head of global rates trading at BTIG in New York.
"Even if CPI moderates a bit, the Fed is geared up to raise rates again in May. All the Fed governors have been on the same page for the most part. There is some evidence though that the economy is slowing down but for whatever reason, the Fed doesn't see that."
The CPI report 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. "The trend that has been in place recently suggests that we're not going to see many minus signs in the (CPI) components," said Tom Simons, U.S. economist at Jefferies in New York. "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 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.
Chicago Fed President Austan Goolsbee , on the other hand, preached caution and patience about raising interest rates amid the recent banking stress. He said on Tuesday a pullback in bank lending would help quell inflation and leave less for monetary policy to do.
In afternoon trading, the yield on 10-year Treasury notes was up 1.7 bps at 3.432%.
U.S. 30-year yields slipped
0.5
bps
to
3.622
%.
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 -60.9 bps.
The inversion of this yield curve typically precedes
recession. The curve has been inverted since July last year.
U.S. two-year yields , which typically move in
step with interest rate expectations, advanced 2.7 bps to 4.037%
Ahead of CPI, breakeven inflation rates across the board
were higher on the day.
The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.336%, up 1.9 bps, indicating the market sees inflation averaging this percentage over the next five years. Tuesday's auction of U.S. three-year notes, meanwhile, showed solid demand, with a
high yield of 3.810%, in line with expectations at the bid deadline. The bid-to-cover ratio, a gauge of demand, was 2.59, lower than the 2.93 posted last month, but higher than the 2.54 average.
April 11 Tuesday 3:45PM New York/1945 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 4.89 5.0207 0.019
Six-month bills 4.7775 4.9773 -0.006
Two-year note 99-179/256 4.035 0.027
Three-year note 102-72/256 3.7923 0.021
Five-year note 100-100/256 3.5383 0.019
Seven-year note 100-224/256 3.4823 0.012
10-year note 100-148/256 3.4299 0.015
20-year bond 101-196/256 3.7478 0.004
30-year bond 100 3.6248 -0.002
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 32.25 -0.25
spread
U.S. 3-year dollar swap 17.75 0.75
spread
U.S. 5-year dollar swap 7.50 0.00
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 and Andrea Ricci)
Messaging: rm://gertrude.chavez.reuters.com@reuters.net))