Bonds News

TREASURIES-Yields near one-year highs, auctions in view

 (Adds comments from Fed's Barkin, Guggenheim; updates prices)
    By Karen Brettell
    NEW YORK, March 22 (Reuters) - Yields dipped on Monday but
held near more than one-year highs as investors bet on a faster
U.S. economic recovery and higher inflation pressures, and
before the Treasury will this week sell $183 billion in short-
and intermediate-dated notes.
    Yields rose after the Fed last Wednesday said that the U.S.
economy is heading for its strongest growth in nearly 40 years,
and central bank policymakers are pledging to keep their foot on
the gas despite an expected surge of inflation.
    At the same time, Fed officials have refrained from
expressing any concern about the recent pickup in yields, saying
the move reflects optimism about the economy.
    “The market is still coming to terms with the fact that this
Fed is going to be focused on maximizing employment and is going
to let inflation run,” said Patrick Leary, chief market
strategist and senior trader at Incapital. 
    Yields are “still overall low enough for the Fed; whether
that will change at some point and what those numbers are, we
don’t really know,” Leary said.
    Benchmark 10-year notes fell 5 basis points to
1.684%, after reaching 1.754% on Thursday, the highest since
January 2020. The yield curve between two-year and 10-year notes
US2US10-=TWEB was 153 basis points, after reaching 160 basis
points on Thursday, the steepest since 2015.
    Ten-year Treasury Inflation Protected-Securities (TIPS)
 are pricing in annual inflation expectations of
2.33% for the coming decade, after going as high as 2.34% on
Thursday, the most since 2014.
    Guggenheim Investments said in a note on Monday that the
selloff may have "largely run its course," noting that the
market is now pricing in a neutral rate of 2.35%, which is in
line with the Fed's "optimistic" expectations.
    The neutral rate is the theoretical level at which the fed
funds rate is seen as being neither accommodative nor
    Richmond Federal Reserve President Thomas Barkin on Monday
said he doesn't believe the U.S. economy is anywhere near the
bar the central bank set before it will begin to even consider
pulling back on its bond-buying program.
    Investors will watch demand for auctions of short- and
intermediate-dated notes this week, after a seven-year note
auction last month saw very weak demand and sparked a dramatic
sell-off across the Treasury curve.
    The Treasury will sell $60 billion in two-year notes on
Tuesday, $61 billion in five-year notes on Wednesday and $62
billion in seven-year notes on Thursday.
    Leary said that five-year notes may be attractive to
investors looking for fixed income as they offer a large pickup
in yields from two- and three-year notes, which are anchored by
the Fed’s zero rate policy.
    Longer-dated maturities, by contrast, have more risk.
    “The five-year is where you get some bang for your buck. ...
It’s an opportunity to get some risk-adjusted return,” Leary
    Five-year yields were last at 0.858%. That
compares to three-year yields at 0.321% and two-year
yields at 0.149%.
    Bank demand for Treasuries will also be under scrutiny for
the coming few months after the Fed on Friday declined to extend
pandemic-related regulatory relief for big U.S. banks, which
means they may need to raise capital against holdings of U.S.
Treasuries and central bank deposits.
    Treasury bill yields bounced on Monday, after trading near
zero last Thursday. One-month bill yields were last
at 2-1/2 basis points, after falling to only half a basis point
on Thursday.
    The cost of borrowing in the overnight repurchase agreement
market also edged higher to 1 basis point, after
trading below zero last week.
      March 22 Monday 3:00PM New York / 1900 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.01         0.0101    0.000
 Six-month bills               0.035        0.0355    0.011
 Two-year note                 99-244/256   0.1492    -0.002
 Three-year note               99-202/256   0.3212    -0.008
 Five-year note                98-70/256    0.8579    -0.024
 Seven-year note               98-160/256   1.3331    -0.038
 10-year note                  94-236/256   1.684     -0.048
 20-year bond                  93-104/256   2.2893    -0.068
 30-year bond                  89-48/256    2.3826    -0.068
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        11.25         0.50    
 U.S. 3-year dollar swap        12.50         0.50    
 U.S. 5-year dollar swap         9.75         0.25    
 U.S. 10-year dollar swap        1.25        -0.25    
 U.S. 30-year dollar swap      -25.75         1.00    
 spread (Reporting by Karen Brettell; Editing by Jonathan Oatis and
Sonya Hepinstall)