Bonds News

TREASURIES-Yields rise as inflation data, auctions eyed as next catalysts

 (Updates prices; adds Kaplan, Daly comments)
    By Chuck Mikolajczak
    NEW YORK, May 10 (Reuters) - Longer-dated U.S. Treasury
yields rose on Monday, reversing course in the session, as
investors awaited data later this week on inflation and auctions
that will bring a burst of supply to the market.
    Yields were whipsawed on Friday in the aftermath of much
weaker-than-anticipated April jobs numbers, which showed nonfarm
payrolls increased by only 266,000, well below the 770,000
reported for March and the 916,000 estimate.

    With investors closely watching for signs of higher prices,
the Wednesday consumer price index release for April will be
monitored as investors gauge if the U.S. Federal Reserve will
begin to alter its stance on inflation. 
    The central bank has repeatedly said it views any inflation
that occurs to be transitory. Chicago Federal Reserve President
Charles Evans said on Monday that inflation rates of 2.5% would
not be a concern if they lead to an average of 2% over time.

    "That is kind of what we are looking at right now, optically
a big market-risk event that ended up not being all that
significant in terms of where the Fed's future path is for
policy," said Tom Simons, a money market economist at Jefferies
in New York.
    "CPI could be kind of the same thing because the Fed has
been talking about looking through near-term inflation pressure
... so we could be setting up for another inflation print that
could come in higher than expected and immediately afterward the
Fed dismisses it again and we are back to square one
    The yield on 10-year Treasury notes was up 2.3
basis points at 1.602%. A jolt of supply is expected this week,
with the U.S. Treasury auctioning $58 billion of three-year
notes on Tuesday, $41 billion of 10-year notes on Wednesday, and
$27 billion of 30-year bonds on Thursday.
    The yield on the 10-year was poised to rise on consecutive
days for the first time since April 26-27. 
    Some Fed officials also appeared to disagree on the central
bank's bond-buying program. Dallas Federal Reserve Bank
President Robert Kaplan said he would like to start discussions
about reducing it, while San Francisco Federal Reserve Bank
President Mary Daly said the Fed should not start thinking about
tapering yet.
    A Federal Reserve Bank of New York survey released on Monday
showed U.S. consumers expect higher housing and other costs in
the near term as the economy bounces back from the coronavirus
pandemic, but not a sustained climb.
    Some market participants have downplayed economic data,
noting that year-over-year comparisons are extreme due to the
severe economic shutdown that began in March 2020.
    Still, inflation expectations rose on Monday, with the
breakeven rate on five-year U.S. Treasury Inflation-Protected
Securities (TIPS) reaching 2.72%, its highest since
April 2011, after closing at 2.681% on Friday.
    The 10-year TIPS breakeven rate also rebounded
after closing at 2.503% on Friday. It was last at 2.54%, its
highest since April 2013, indicating the market sees inflation
averaging 2.5% a year for the next decade.
      May 10 Monday 3:09PM New York / 1909 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.0125       0.0127    -0.002
 Six-month bills               0.035        0.0355    0.001
 Two-year note                 99-241/256   0.1548    0.010
 Three-year note               100-58/256   0.2972    0.010
 Five-year note                99-214/256   0.7837    0.013
 Seven-year note               99-246/256   1.2559    0.020
 10-year note                  95-180/256   1.602     0.023
 20-year bond                  94-248/256   2.1899    0.029
 30-year bond                  90-136/256   2.317     0.040
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap         9.75        -0.25    
 U.S. 3-year dollar swap        12.50        -0.50    
 U.S. 5-year dollar swap         8.25        -1.00    
 U.S. 10-year dollar swap       -3.25        -1.00    
 U.S. 30-year dollar swap      -29.75        -1.25    
 spread (Reporting by Chuck Mikolajczak
Editing by Nick Zieminski and Richard Chang)