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 88% 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. Data on Tuesday showed that U.S. single-family homebuilding increased in March, while permits for future construction surged, suggesting that the worst of the housing market slump was likely behind. Benchmark 10-year yields dipped 1 basis point to 3.581% and two-year yields were unchanged on the day at 4.188%. The yield curve between two-year and 10-year notes was last at minus 61 basis points. Investors are also focused on whether Congress will raise the debt ceiling or risk having the Treasury default on its debt. Many analysts say the Treasury is most likely to risk running out of money in August. 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 reached 5.083% on Tuesday, the highest since they were introduced in 2018. Four-month bills maturing in August, meanwhile, reached 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. "This (rise in bill yields) is in part related to the debt ceiling rising closer to the top of the list of worries, with Republicans due to make a proposal to Democrats this week and with today being a tax payment deadline," said Antoine Bouvet, head of European rates strategy at Dutch bank ING. U.S. House of Representatives Speaker Kevin McCarthy on Monday outlined spending cuts he said his fellow Republicans would demand in exchange for voting to raise the federal government's $31.4 trillion debt ceiling.
April 18 Tuesday 9:36AM New York / 1336 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 5.05 5.1871 0.079
Six-month bills 4.8675 5.0735 0.009
Two-year note 99-107/256 4.1882 0.000
Three-year note 99-144/256 3.9064 -0.009
Five-year note 99-190/256 3.6821 -0.011
Seven-year note 99-250/256 3.6286 -0.011
10-year note 99-84/256 3.5813 -0.010
20-year bond 99-136/256 3.9089 -0.009
30-year bond 96-244/256 3.7963 -0.008
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 29.25 -0.75
spread
U.S. 3-year dollar swap 19.50 -0.25
spread
U.S. 5-year dollar swap 7.25 0.00
spread
U.S. 10-year dollar swap -1.25 0.25
spread
U.S. 30-year dollar swap -42.75 0.25
spread
(Reporting by Karen Brettell; Additional reporting by Harry
Robertson in London; Editing by Sharon Singleton)
