TREASURIES-Longer-dated yields on track to end week lower

By Karen Brettell NEW YORK, May 12 (Reuters) - Longer-dated yields were on track to end the week lower on Friday after inflation data this week boosted confidence that the Federal Reserve will stop hiking rates at its next meeting in June. Consumer and producer price reports this week showed that inflation is continuing to ease, even though price pressures remain well above the Fed’s 2% target. Headline consumer prices rose at an annual rate of 4.9% in April. “We’re on the way towards more stable inflation, something that’s closer to target, and the market rallied because I think probably some of the last few bets that the Fed might have to hike in June are probably coming off,” said Thomas Simons, a money market economist at Jefferies in New York. Benchmark 10-year notes were little changed on the day at 3.403%, and are down from 3.446% last Friday. Two-year yields rose one-and-a-half basis points to 5.119%. The inversion in the yield curve between two-year and 10-year notes deepened slightly to minus 52 basis points. Fed funds futures traders are pricing in 95% odds that the U.S. central bank will leave rates unchanged in June, and they expect around 75 basis points of cuts by year-end. Investors are also focused on negotiations to raise the debt ceiling, which has created distortions in the short-end of the yield curve as investors avoid bills that come due when the Treasury is at risk of running out of funds, and pour into alternative issues. A debt limit meeting between U.S. President Joe Biden and top lawmakers that had been scheduled for Friday has been postponed, and the leaders agreed to meet early next week. Aides from both sides have started to discuss ways to limit federal spending, as part of an agreement to raise the $31.4 trillion debt ceiling. That may be good news as “they are at least making progress,” said Simons. One-month bill yields are at 5.691% on Friday, just below a record 5.811% reached on Wednesday. Two-month bill yields are 4.935%, after volatile trading on Thursday saw them trade as low as 4.526% and as high as 5.145%.

May 12 Friday 9:45AM New York / 1345 GMT Price Current Net Yield % Change (bps) Three-month bills 5.0475 5.1808 -0.003 Six-month bills 4.9125 5.1187 0.003 Two-year note 99-233/256 3.9223 0.016 Three-year note 100-30/256 3.5834 0.016 Five-year note 100-146/256 3.3739 0.017 Seven-year note 100-184/256 3.383 0.012 10-year note 99-196/256 3.4029 0.006 20-year bond 100-176/256 3.8248 0.005 30-year bond 97-216/256 3.7453 0.001
DOLLAR SWAP SPREADS

Last (bps) Net

Change

(bps)
U.S. 2-year dollar swap 20.25 -0.50
spread
U.S. 3-year dollar swap 15.25 -0.75
spread
U.S. 5-year dollar swap 8.25 -0.50
spread
U.S. 10-year dollar swap 0.00 -0.50
spread
U.S. 30-year dollar swap -43.50 0.00
spread

(Reporting by Karen Brettell Editing by Christina Fincher)