Fed officials also continue to stress the need to keep fighting inflation even as markets price in rate cuts later this year. “The majority of the Fed governors have been pretty hawkish; they don’t seem to be changing the narrative at all,” said Tom di Galoma, managing director and co-head of global rates trading at BTIG in New York. Fed funds futures traders are pricing in an 86% probability of a 25 basis point increase at the Fed’s May 2-3 meeting. For June, there is around a 30% chance of an additional 25 basis points increase, said di Galoma. “I think that that’s certainly a possibility; we’ll have a lot more data between now and June.” St. Louis Fed President James Bullard said that the U.S. central bank should continue raising interest rates on the back of recent data showing inflation remains persistent while the broader economy seems poised to continue growing, even if slowly. Atlanta Fed President Raphael Bostic also said the U.S. central bank most likely has one more interest rate rise ahead of it as it continues to work to lower high inflation.
Data on Tuesday showed that U.S. single-family homebuilding increased for a second straight month in March, while permits for future construction surged, offering some glimmers of hope for the depressed housing market ahead of the busy spring selling season.
Benchmark 10-year yields dipped 2 basis points to 3.572% while two-year yields rose 1 basis point to 4.199%. The inversion in the yield curve between two-year and 10-year notes deepened to minus 63 basis points. Investors are also focused on whether Congress will raise the debt ceiling soon or risk having the Treasury default on its debt. Many analysts say the Treasury is most likely to run out of money in late July or August if the ceiling is not lifted. Economists at Goldman Sachs, however, said in a note on Tuesday that weak tax collections so far this month have increased the probability that the debt limit could be reached in the first half of June. Yields on two-month bills that come due in mid-June briefly reached 5.083% on Tuesday, the highest since they were introduced in 2018. Four-month bills maturing in August, meanwhile, rose to 5.299%, the highest since they were launched last October.
The four-month yields are trading above those on six-month bills, which may suggest some elevated concerns over debt maturing in August. Republicans in the U.S. House of Representatives on Tuesday held a "robust" discussion over Speaker Kevin McCarthy's plans for raising the federal debt limit and cutting future government spending, amid signs of discontent ranging from far-right to more moderate wings of the party.
April 18 Tuesday 3:00PM New York / 1900 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 5.04 5.1767 0.069
Six-month bills 4.8825 5.0895 0.024
Two-year note 99-102/256 4.1988 0.011
Three-year note 99-144/256 3.9064 -0.009
Five-year note 99-198/256 3.6752 -0.018
Seven-year note 100-8/256 3.6196 -0.020
10-year note 99-104/256 3.5717 -0.019
20-year bond 99-160/256 3.902 -0.016
30-year bond 97-24/256 3.7882 -0.016
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 29.50 -0.50
spread
U.S. 3-year dollar swap 20.00 0.25
spread
U.S. 5-year dollar swap 8.00 0.75
spread
U.S. 10-year dollar swap 0.00 1.50
spread
U.S. 30-year dollar swap -41.75 1.25
spread
(Reporting by Karen Brettell; Additional reporting by Harry Robertson in London; Editing by Sharon Singleton and Jonathan Oatis)
