Softening inflation data has added to expectations that the Fed is closer to ending its tightening cycle and the economy is expected to slow as a result of higher rates.
Growth remains relatively solid for now, however, indicating that a recession is unlikely at least for the near term. That could keep the Fed on a tightening path, or at least likely to maintain rates at high levels. "It will take time and we’re still in the early phases of slowing," said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia. Investors will focus on comments from Fed speakers this week for any new indications on whether further rate hikes are likely after May. The officials will enter into a blackout period from April 22 ahead of the Fed’s May 2-3 meeting. Fed Governor Christopher Waller said on Friday that U.S. central bankers "haven't made much progress" in returning inflation to their 2% target and need to move interest rates higher still. The head of the Bank of International Settlements also said on Monday that to avoid a long-term "high-inflation regime" rates may need to stay higher and for longer than previously thought, even at the expense of slowing down economies. Yields rose on Friday after some components of retail sales data for March were not as weak as feared, even though sales fell during the month. The data also still pointed to a strong first quarter.
"The March retail numbers weren’t great or anything, but after inflation consumer spend remains pretty buoyant," LeBas said. Yields hit session highs on Monday after the NY Empire State Manufacturing index unexpectedly rose in April. Other data showed that confidence among U.S. single-family homebuilders improved for a fourth straight month in April.
Yields were also due for a bounce after dropping sharply in March. Benchmark 10-year yields rose 7 basis points to 3.591% on Monday, and are up from a seven-month low of 3.253% on April 6. Two-year yields gained 9 basis points to 4.188%. The yield curve between two-year and 10-year notes was last at minus 60 basis points. Meanwhile, some investors and analysts expect the economy to be further hurt by tighter lending standards following the collapse of two regional banks including Silicon Valley Bank in mid-March. Goldman Sachs said in a report dated April 14 that it has lowered its Treasury yield expectations as it anticipates slower growth as a result of tighter credit conditions, which the bank’s economists estimate will lower gross domestic product growth by 0.4% over the year.
Goldman now expects 10-year yields to end the year at 3.9%, down from its previous forecast of around 4.2%.
April 17 Monday 3:00PM New York / 1900 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 4.965 5.0944 -0.002
Six-month bills 4.8525 5.054 0.031
Two-year note 99-107/256 4.1878 0.085
Three-year note 99-138/256 3.9146 0.076
Five-year note 99-176/256 3.6943 0.083
Seven-year note 99-232/256 3.6401 0.075
10-year note 99-64/256 3.5908 0.069
20-year bond 99-108/256 3.9169 0.066
30-year bond 96-208/256 3.8044 0.067
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 30.00 0.50
spread
U.S. 3-year dollar swap 19.75 1.75
spread
U.S. 5-year dollar swap 7.25 0.50
spread
U.S. 10-year dollar swap -1.50 0.00
spread
U.S. 30-year dollar swap -43.00 0.25
spread
(Reporting by Karen Brettell in New York
Editing by Ed Osmond and Matthew Lewis)
