SINGAPORE, May 2 (Reuters) - Short-dated Treasury bills
were under pressure on Tuesday and the cost of insuring against
a U.S. default hit fresh highs after the Treasury Secretary said
the government could run out of money within a month.
Janet Yellen said in a letter to Congress that the agency
will be unlikely to meet all U.S. government payment obligations
"potentially as early as June 1," unless Congress acts.
Credit default swaps are notoriously illiquid, but spreads
have been widening at an alarming rate. Refinitiv-calculated
data showed one-year U.S. credit default swap spreads hit 165.81 basis points early on Tuesday.
"There is very little time on the legislative calendar to
reach a deal," said Goldman Sachs analysts in a note. "The next
few weeks are going to be unpredictable."
Five-year spreads hit a record on Friday.
Tradeweb data also showed pressure on one-month cash
Treasuries , with bid-offer spreads wide and yields
jumping nearly 18 basis points to one-month highs of 4.616%.
Dealers said markets had also been focused on this week's
Federal Reserve meeting and the U.S. banking turmoil.
Two-year yields rose overnight and were steady at
4.1386% in Asia. Benchmark 10-year yields climbed a
dozen basis points overnight and held at 3.5547% on Tuesday.
Bond yields rise when prices fall.
Regulators seized and sold First Republic Bank to JPMorgan
for $10.6 billion, which markets viewed as reducing the latest
stress on the U.S. banking system and increasing the likelihood
the Fed delivers one more rate hike on Wednesday.
Fed funds futures imply a 95% chance of a 25 bp
hike, but also price in rate cuts by the end of the year and
traders are waiting to see whether and how much Fed Chair Jerome
Powell pushes back on these expectations this week. A glut of blue-chip corporate bond sales - led by Facebook
parent Meta Platforms seeking to raise $8.5 billion -
also weighed on Treasuries demand overnight, analysts said.
"That actually pushed up the back end of the curve,
particularly the 10-year (yield)," said Alvin Tan, head of Asia
FX strategy at RBC Capital Markets.
"In general, risk sentiment has continued to normalise from
the March turbulence, and that's also adding a fundamental
support to the higher interest rates in the U.S."
(Reporting by Rae Wee
Editing by Shri Navaratnam)
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