Friday's strong labor data showed the Fed still has work to do in fighting persistent inflation, after the central bank on Wednesday hiked rates a further 25 bps. The move upward in longer-dated Treasury yields marks a reversal in course from their downward trend throughout the week, when investors bet that the Federal Reserve would pause and then cut rates this year. "I think a lot of that, especially the move across the curve, reflects the likelihood that the Fed is going to keep going at a high level for quite a long time, probably longer than Fed Funds Futures have been pricing," said Steven Abrahams of Amherst Pierpont Securities, a broker-dealer owned by Santander. The yield curve between two-year and 10-year Treasuries , an indicator of economic conditions, steepened to negative 47.6 bps. On Friday, the yield on the one-month T-bill fell 21.8 bps to 5.521% after earlier rising to 5.739%, a record high. Yields on two-month and three-month bills also ticked down. Investors dumped bonds with shorter-dated Treasury bills earlier this week, in the latest sign of nerves about the U.S. debt ceiling standoff. Treasury Secretary Janet Yellen said this week that the government could run out of cash as soon as June 1, as Democrats and Republicans stand at an impasse. On Thursday, the Treasury Department auctioned roughly $95 billion in short-term debt at record-high interest rates.
Treasury will hold another auction on May 9 for $40 billion in three-year notes . The yield on existing three-year notes rose 19.4 bps on Friday to 3.647%. The next major economic data point will come on Monday when the Fed is slated to release its Senior Loan Officer Opinion Survey, which will show the state of credit conditions in the first quarter. "I think the market is probably giving a lot of weight to tightening credit conditions - that's the wild card now," Abrahams said.
May 5 Friday 1:11PM New York / 1711 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 5.13 5.2665 -0.002
Six-month bills 4.9175 5.11 0.107
Two-year note 99-228/256 3.9326 0.206
Three-year note 100-70/256 3.6503 0.196
Five-year note 100-80/256 3.431 0.155
Seven-year note 100-102/256 3.4352 0.129
10-year note 100-92/256 3.4559 0.104
30-year bond 97-108/256 3.7696 0.048
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 25.00 -1.25
spread
U.S. 3-year dollar swap 15.50 -1.00
spread
U.S. 5-year dollar swap 10.25 0.00
spread
U.S. 10-year dollar swap 2.25 -0.25
spread
U.S. 30-year dollar swap -41.75 -0.75
spread
(Reporting by Matt Tracy; Editing by Nick Macfie and Andrea
Ricci)
