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Bonds News

TREASURIES-Trouble-free note auctions keep a lid on yield gains

 (Recasts, adds 10-year note auction results, analyst comments)
    By Karen Brettell and Karen Pierog
    April 12 (Reuters) - Smooth note auctions on Monday kept a
move higher in U.S. Treasury yields in check as the market
looked ahead to this week's 30-year bond offering and key data
releases, including consumer price inflation. 
    An auction of $38 billion of 10-year notes resulted in a
high yield of 1.680% and a bid-to-cover ratio, a gauge of
demand, of 2.36 times.
    Earlier on Monday, $58 billion of three-year notes were sold
at a high yield of 0.376% and with a bid-to-cover ratio of 2.32
times..
    "Having two in a day on a Monday and just having them go so
far pretty darn well, you couldn't ask for more," said Jim
Vogel, senior rates strategist at FHN Financial in Memphis,
Tennessee.
    The benchmark 10-year yield was last up 1 basis
point at 1.6764%, holding below a 14-month high of 1.776%
reached on March 30. The three-year yield was last
2.2 basis points higher at 0.3576%. 
    Vogel said yields barely budged following the auctions.
    "It shows that we've got fairly stable yields not because no
one's paying attention, but because for the most part we're
comfortable at least until we get some big new developments," he
said.
    Combined with a $24 billion auction of 30-year bonds on
Tuesday, $120 billion in coupon supply hits the market this
week, testing investor appetite for debt.
    Yields have dipped from one-year highs reached last month on
improving demand for the debt, though they remain elevated with
investors concerned that faster economic growth and rising price
pressures will continue to push yields higher.
    Increasing supply as the government finances higher fiscal
spending and widening deficits is adding to the yield increases.
     Aside from the auctions, the market is also focused on key
data this week, including U.S. consumer price data for March due
out on Tuesday. Investors are betting that price pressures will
increase due to increased fiscal and monetary stimulus and as
businesses reopen from COVID-19 related closures. 
    "We've built so much in terms of inflation expectations into
the market right now that you almost have to have a high CPI
report maybe for the next three or four months or people are 
going to have to maybe reassess how much concern that they've
already built in about inflation," Vogel said.
    Comparisons with last year are also likely to be strong, due
to a drop in inflation a year ago when businesses closed due to
COVID-19.
    “This is the first month we’re going to see the big base
effect pump up the year-over-year comparisons,” said Tom Simons,
a money market economist at Jefferies in New York.
    Market participants are aware of the effect, however, and
the Federal Reserve has indicated it will look through any
temporary inflation, making it unlikely that a strong number
will create a hawkish response from the U.S. central bank.
    “I don’t think there is a real risk that the hiking timeline
is pulled forward or anything like that,” Simons said.
    Data on Friday showed that U.S. producer prices notched
their largest annual gain in 9-1/2 years last month.

    The two-year Treasury yield, which typically
moves in step with interest rate expectations, was last up 1.6
basis points at 0.1728%. 
    A closely watched part of the yield curve, which measures
the gap between yields on two- and 10-year Treasury notes
, was less than a basis point steeper at 150.36
basis points.
    
   April 12 Monday 13:57PM New York / 1757 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.0175       0.0177    0.005
 Six-month bills               0.0375       0.038     0.000
 Two-year note                 99-232/256   0.1728    0.016
 Three-year note               99-176/256   0.3576    0.022
 Five-year note                99-82/256    0.8903    0.022
 Seven-year note               99-96/256    1.3443    0.014
 10-year note                  95-4/256     1.6764    0.010
 20-year bond                  94-48/256    2.2394    0.016
 30-year bond                  89-232/256   2.3473    0.008
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        11.50        -0.75    
 spread                                               
 U.S. 3-year dollar swap        14.50        -0.50    
 spread                                               
 U.S. 5-year dollar swap        10.50        -0.75    
 spread                                               
 U.S. 10-year dollar swap        1.75        -0.75    
 spread                                               
 U.S. 30-year dollar swap      -22.75        -0.75    
 spread (Reporting by Karen Brettell in New York and Karen Pierog in
Chicago; editing by Jonathan Oatis)
  
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