TRESOR – US yields rise as markets position themselves for a hawkish Fed
By Gertrude Chavez-Dreyfuss
NEW YORK, August 22 (Reuters) – U.S. Treasury yields rose on Monday as investors awaited a Federal Reserve rally later this week in Jackson Hole, Wyoming that should reinforce the central bank’s commitment to stamping out inflation.
The benchmark 10-year yield hit a five-week high of 3.039%, while the 30-year yield climbed to a seven-week high of 3.268%.
This week’s auction of $126 billion in shorter-dated coupons — two-, five-, and seven-year US notes — also added to the sell-off in Treasuries that pushed their yields higher on the day- there, according to analysts. said.
Traders tend to sell Treasuries ahead of an auction so they can buy them back at a lower price in a move called a “supply concession”.
The focus, however, is on possible comments from Fed Chairman Jerome Powell, who is scheduled to speak Friday morning at the Jackson Hole symposium.
“Powell is going to be on the hawkish side, but we disagree with him,” said Stan Shipley, fixed income strategist at Evercore ISI in New York.
“We think inflation is slowing down here. At some point it would be appropriate for him to acknowledge that, but it won’t be in Jackson Hole.”
Fed minutes from last week suggested the Fed was on track to raise interest rates indefinitely, as the central bank saw “little evidence” that inflationary pressures were easing. The Fed has more explicitly acknowledged the risk of going too far and dampening economic activity too much.
On Monday, fed funds futures priced a 54.5% chance of a 50 basis point (bp) rate hike at the Fed’s monetary policy meeting next month. The fed funds rate is expected to reach around 3.6% by the end of the year, with a record high of almost 3.8% in March 2023 FEDWATCH.
“The Fed is not going to ease just because we had a positive CPI number,” said Mike Zigmont, head of trading and research at Harvest Volatility Management.
“They want to see two or three positive numbers to slow their rate of increase. The fed funds rate is only at 2.5%. So another 75 basis point hike is not that crazy.”
In afternoon trading, the yield on 10-year Treasury bills US10YT=RR rose 4.6 basis points to 3.035%.
The yield of the 30-year Treasury bond US30YT=RR rose 1.6 basis points to 3.241%.
A closely watched part of the US yield curve measuring the spread between two- and ten-year Treasury yields US2US10=RRconsidered an indicator of economic expectations, reversed to -30.4 basis points.
An inversion of this part of the curve has preceded eight of the last nine recessions, analysts say.
The two years US2YT=RR The U.S. Treasury yield, which typically tracks interest rate movements, rose 7 basis points to 3.335%.
In other parts of the Treasury market, the break-even rate for five-year U.S. Treasury Inflation-Protected Securities (TIPS) USBEI5Y=RR was last at 2.8320%, down about 44 basis points from the 3.2456% hit in mid-June. The five-year break-even rate suggested that investors expected inflation to average around 2.8% over the next five years.
The US dollar 5-year inflation-linked swap USIL5YF5Y=Rconsidered by some to be a better indicator of inflation expectations, last stood at 2.575%.
August 22 Monday 3:04 p.m. New York / 1904 GMT
Current yield %
Net change (bps)
Three-month bills US3MT=RR
Half-yearly invoices US6MT=RR
Two-year ticket US2YT=RR
Three-year ticket US3YT=RR
Five-year ticket US5YT=RR
Seven-year note US7YT=RR
10 year ticket US10YT=RR
20 year bond US20YT=RR
30 year bond US30YT=RR
DOLLAR EXCHANGE DIFFERENCES
Net change (bps)
2-year US dollar swap spread
3-year US dollar swap spread
5-year US dollar swap spread
10-year US dollar swap spread
30-year US dollar swap spread
(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Devik Jain in Bengalaru; Editing by Kirsten Donovan and Rosalba O’Brien)
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