TREASURIES-Yields fall as producer price increases ease

By Karen Brettell NEW YORK, May 11 (Reuters) - U.S. Treasury yields fell on Thursday after data showed that producer price increases eased in April, adding to expectations that an improving inflation picture will lead the Federal Reserve to pause its interest rate increases. Producer prices rose at an annual rate of 2.3% last month, the smallest year-on-year rise since January 2021 and down from a 2.7% advance in March. It comes after 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, adding that “the Fed is probably done tightening.” Benchmark 10-year notes were last at 3.357%, down 8 basis points on the day, while two-year yields fell 8 basis points to 3.820%. The inversion in the yield curve between two-year and 10-year yields is at minus 46 basis points. Investors are concerned that the economy will slow and possibly tip into recession in the second half of the year as a result of higher interest rates and on tightening credit conditions, which have 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 84 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 that 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 will sell $21 billion in 30-year bonds on Thursday, the final sale of $96 billion in coupon-bearing supply this week. The government saw strong demand for a $40 billion sale of three-year notes on Tuesday and solid interest in a $35 billion auction of 10-year notes on Wednesday.
May 11 Thursday 9:38AM New York / 1338 GMT Price Current Net Yield % Change (bps) Three-month bills 5.065 5.2012 -0.031 Six-month bills 4.8775 5.0835 -0.024 Two-year note 100-26/256 3.8203 -0.081 Three-year note 100-104/256 3.4812 -0.080 Five-year note 100-242/256 3.292 -0.081 Seven-year note 101-36/256 3.3152 -0.083 10-year note 100-40/256 3.3565 -0.080 20-year bond 101-12/256 3.7989 -0.076 30-year bond 98-12/256 3.734 -0.065
DOLLAR SWAP SPREADS

Last (bps) Net

Change

(bps)
U.S. 2-year dollar swap 21.75 0.25
spread
U.S. 3-year dollar swap 17.50 0.00
spread
U.S. 5-year dollar swap 9.25 0.00
spread
U.S. 10-year dollar swap 1.25 0.25
spread
U.S. 30-year dollar swap -43.25 0.00
spread

(Reporting by Karen Brettell; Editing by Sharon Singleton)