(Corrects typo in seventh paragraph)
By Karen Brettell
NEW YORK, April 21 (Reuters) - U.S. Treasury yields fell
on Friday as investors waited on the Fed’s upcoming May meeting
for more guidance on whether further rate hikes are likely,
while debt ceiling fears and lingering concerns over the banking
sector kept demand for the U.S. debt strong.
Benchmark 10-year yields have risen from seven-month lows
touched on April 6 as the banking sector appears to stabilize,
following the collapse of two regional banks including Silicon
Valley Bank in mid-March.
That has helped to ramp up expectations that the Fed will
hike rates by 25 basis points at its May 2-3 meeting.
However, the 10-year yields have also failed to break above
the 3.65% area, with investors wary to take large short
positions in case new negative banking headlines emerge. Traders
are also worried about whether the U.S. Congress will raise the
debt ceiling in time to avoid a catastrophic default on U.S.
debt.
“The market is still reluctant to be short because that
exposes them to asymmetric downside risk in the event of any bad
headlines,” said Gennadiy Goldberg, senior interest rate
strategist at TD Securities in New York. “What we’ve seen is
more buying on dips, when rates rise we’ve seen investors come
in and be more willing to be long Treasuries.”
Crucially, investors will be watching the Fed for any new
guidance on whether further hikes after May’s expected rate
increase.
“It’s really about what the Fed says, how they portray the
May hike, whether they mention explicitly that it’s the last
one, or whether they keep the door open,” Goldberg said, adding
that investors are “waiting for the FOMC meeting to make a
decision on which way to go.”
Ten-year Treasury yields were last at 3.507%,
down 4 basis points on the day. Two-year yields fell
7 basis points to 4.103%. The inversion in the yield curve
between two year and 10-year yields narrowed to
minus 60 basis points.
One-month Treasury bill yields traded near six-month lows as
investors seek out short-term debt that matures before the
Treasury is expected to reach its debt limit.
Bills have been in demand on concerns about the safety of
bank deposits as a result of March’s banking stress.
But some investors want to avoid debt that will mature when
there is a risk that the United States could hit its debt
ceiling, which is seen as most likely to occur in late July or
August.
The one-month bills were last at 3.453%.
April 21 Friday 9:33AM New York / 1333 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 4.9475 5.0769 -0.024
Six-month bills 4.845 5.0466 -0.012
Two-year note 99-148/256 4.1029 -0.067
Three-year note 99-212/256 3.8114 -0.065
Five-year note 100-42/256 3.588 -0.052
Seven-year note 100-120/256 3.5478 -0.046
10-year note 99-240/256 3.5072 -0.038
20-year bond 100-100/256 3.8463 -0.033
30-year bond 98-40/256 3.7277 -0.025
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 28.25 0.00
spread
U.S. 3-year dollar swap 17.75 -0.25
spread
U.S. 5-year dollar swap 7.50 0.25
spread
U.S. 10-year dollar swap -0.75 0.25
spread
U.S. 30-year dollar swap -41.50 -0.25
spread
(Reporting by Karen Brettell; Editing by Susan Fenton)
