By Davide Barbuscia
NEW YORK, May 15 (Reuters) - Longer-dated U.S. Treasury
yields ticked higher on Monday on lingering investor concerns
that inflation will remain sticky and in line with government
bond yields in Europe, where the European Commission forecast
higher growth and inflation.
U.S. government bond yields, which move inversely to prices,
rose late last week after data showing consumers' long-term
inflation expectations increased to their highest reading since
2011 in May. That followed an earlier bond price rally after
consumer and producer price reports showed inflation was
continuing to ease.
"While realized inflation might be grinding back toward the
Fed’s objective, forward expectations are trending decidedly in
the wrong direction for the FOMC (Federal Open Market
Committee)," BMO Capital Markets strategists Ian Lyngen and
Benjamin Jeffery said in a note.
"This divergence is surely concerning for policymakers as
it reinforces the need for Fed funds to remain restrictive for
an extended period," they said.
Fed funds futures traders on Monday were anticipating about
70 basis points of rate cuts by the end of this year, but
Raphael Bostic, the president of the Federal Reserve Bank of
Atlanta, said he did not expect any interest-rate cuts this year
as inflation will likely take longer to subside than the market
expects.
"We look at the Fed funds futures market and are confounded
by the expectations that the Fed will cut later this year," said
Michael Reynolds, vice president of investment strategy at
Glenmede. "The Fed is telling us pretty explicitly that it has
no plans to do anything like that, inflation has been staying
sticky and inflation expectations have been moving higher."
Benchmark 10-year yields climbed four basis
points to 3.503% and 30-year bonds were up five
basis points to 3.832%.
Two-year yields were unchanged on the day at 4%,
having declined earlier on Monday after The New York Federal
Reserve's "Empire State" index on current business conditions
dropped by much more than expected in May.
Meanwhile, investors remained laser-focused on lawmakers'
talks around the U.S. government's debt ceiling, with President
Joe Biden expected to meet Congressional leaders on Tuesday.
At about 5.6%, one-month Treasury bills were the highest
yielding government bonds on Monday, reflecting worries that the
government may default as soon as next month if it does not
reach an agreement.
May 15 Monday 9:46AM New York / 1346 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 5.065 5.1982 -0.018
Six-month bills 4.9225 5.1287 -0.003
Two-year note 99-194/256 4.0041 0.000
Three-year note 99-216/256 3.6805 0.012
Five-year note 100-26/256 3.4772 0.026
Seven-year note 100-14/256 3.4909 0.036
10-year note 98-236/256 3.5037 0.041
20-year bond 99-80/256 3.925 0.059
30-year bond 96-84/256 3.832 0.055
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 19.75 -0.25
spread
U.S. 3-year dollar swap 14.25 -0.75
spread
U.S. 5-year dollar swap 7.50 -0.25
spread
U.S. 10-year dollar swap -0.50 0.00
spread
U.S. 30-year dollar swap -44.50 -0.50
spread
(Reporting by Davide Barbuscia
Editing by Bernadette Baum)
Messaging: davide.barbuscia.reuters.com@reuters.net))
