(Adds comments from Fed's Kashkari in 6th paragraph, 30-year
auction results in 11th paragraph, Yellen comments on debt
ceiling in 14th paragraph; updates prices)
By Karen Brettell
NEW YORK, May 11 (Reuters) - Longer-dated U.S. Treasury
yields fell on Thursday on news of smaller producer price
increases, bolstering expectations that an easing of
inflationary pressures will lead the Federal Reserve to pause
its interest rate increases.
Producer prices rose at an annual rate of 2.3% in April, the
smallest year-on-year rise since January 2021, after a 2.7%
advance in March.
Data on Wednesday showed consumer price gains slowing to
below 5% in April for the first time in two years.
"The inflation picture is getting much better," said Tom di
Galoma, managing director and co-head of global rates trading
at BTIG in New York. "The Fed is probably done tightening."
Benchmark 10-year notes were last at 3.397%,
down 4 basis points on the day, while two-year yields edged higher to 3.906%, erasing an earlier drop. The yield curve
inversion between two-year and 10-year yields deepened to minus 52 basis points.
Yields came off their lows after Minneapolis Fed President
Neel Kashkari warned that rates may need to stay elevated for
"an extended period of time" if inflation remains stubbornly
high.
Investors worry that the economy will slow and tip into
recession in the second half of the year due to higher interest
rates and credit tightening, which has worsened as a result of
stress on the U.S. regional bank sector.
The Fed is viewed as almost certain to keep rates unchanged
at its next meeting in June. Fed funds futures traders are also
pricing in around 76 basis points of rate cuts for the second
half of the year, with a rate cut fully priced in for September. Other data on Thursday showed the number of Americans filing
new claims for jobless benefits jumped last week to the highest
level since late 2021, suggesting that higher interest rates
were starting to weigh on the labor market.
The Treasury saw strong demand for a $21 billion sale
30-year bonds on Thursday, the final sale of $96 billion in
coupon-bearing supply this week.
The bonds sold at a high yield of 3.741%, more than a basis
point below where they had traded before the auction. The
bid-to-cover ratio was 2.43 times, the highest since January. Demand was robust for a $40 billion sale of three-year notes
on Tuesday and there was solid interest in a $35 billion auction
of 10-year notes on Wednesday.
Investors are also focused on talks to raise the $31.4
trillion U.S. debt ceiling, as Treasury Secretary Janet Yellen
urged Congress to do so, warning that an unprecedented default
that would trigger a global economic downturn and risk
undermining U.S. global economic leadership.
Yields on one-month bills that come due around
the time when the Treasury is at risk of running out of cash
held near record highs on Thursday and last traded at 5.524%.
Two-month bill yields plummeted as low as 4.526%,
from 4.973% on Wednesday, as investors sought out bills.
May 11 Thursday 3:00PM New York / 1900 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 5.035 5.17 -0.062
Six-month bills 4.9075 5.1155 0.008
Two-year note 99-241/256 3.9056 0.005
Three-year note 100-42/256 3.5668 0.006
Five-year note 100-166/256 3.357 -0.016
Seven-year note 100-204/256 3.3706 -0.027
10-year note 99-208/256 3.3973 -0.039
20-year bond 100-192/256 3.8203 -0.055
30-year bond 97-204/256 3.7482 -0.051
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 20.50 -1.00
spread
U.S. 3-year dollar swap 15.75 -1.75
spread
U.S. 5-year dollar swap 8.75 -0.50
spread
U.S. 10-year dollar swap 0.50 -0.50
spread
U.S. 30-year dollar swap -43.50 -0.25
spread
(Reporting by Karen Brettell; Editing by Sharon Singleton and
Richard Chang)
