Bonds News

CORRECTED-TREASURIES-U.S. yields slip on doubts over how fast economy can roar

 (Corrects spelling to FHN Financial, instead of FTN Financial,
in paragraph 3 of May 20 story)
    By Herbert Lash
    NEW YORK, May 20 (Reuters) - Yields on nominal U.S. Treasury
debt and inflation-linked securities fell on Thursday after
factory activity in the U.S. mid-Atlantic region slowed in May
from a record pace, casting doubt on how fast the economy can
continue to roar.
    The breakeven rate on 10-year Treasury inflation-protected
securities, or TIPS, fell to a session low of 2.44% after the
auction of $13 billion in 10-year TIPS securities.
    "To continue to buy protection against inflation requires
either a belief or additional evidence that inflation is
continuing to go higher, above where you bought the last time,"
said Jim Vogel, interest rate strategist at FHN Financial.
    The market needs to see confirmation of faster inflation
after so much optimism about the recovery, the economy reopening
and the impact of government stimulus on growth was incorporated
into expectations in a very short period, Vogel said.
    The Philadelphia Federal Reserve Bank said its business
activity index fell to 31.5 from 50.2 in April, its highest pace
in nearly half a century. The reading was shy of economists'
expectations of 43.0, a Reuters poll found.
    The yield on benchmark 10-year Treasury notes
fell 5.1 basis points to 1.632%. 
    The breakeven rate on five-year TIPS slid to
2.598%, after closing at 2.646% on Wednesday. The rate hit its
highest close in just over a decade on Monday.
    Market expectations of a further rise in inflation would
need evidence of the economy moving past full employment very,
very rapidly, said Steven Ricchiuto, U.S. chief economist at
Mizuho Securities USA LLC.
    If you don't "reach full peak employment very, very quickly,
then you have to rethink, reset your overall expectations on the
market," he said, adding the U.S. economy probably reached its
peak level of activity in March and April.
    The number of Americans filing new claims for unemployment
benefits dropped further below 500,000 last week, suggesting job
growth picked up this month. But companies are desperate for
workers, which could affect how quickly the economy grows.
    Initial claims for state unemployment benefits totaled a
seasonally adjusted 444,000 for the week ended May 15, compared
to 478,000 in the prior week, the Labor Department said on
Thursday. That was the lowest since mid-March 2020.
    Bond yields jumped on Wednesday after minutes of the Federal
Reserve's April meeting mentioned a number of policymakers found
that "at some point" in the future discussion of adjusting the
pace of bond purchases might be appropriate.
    The market's reaction to "taper talk" is now seen as
knee-jerk. But on Wednesday it conjured memories of the volatile
reaction to Fed efforts in 2013 to ease an accommodative policy.
    The yield on the 30-year Treasury bond was down
4.7 basis points to 2.340%. 
    The 10-year TIPS breakeven rate was last at
2.457%, indicating the market sees inflation averaging just
under 2.5% a year for the next decade.    
May 20 Thursday 3:04PM New York / 1904 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.0075       0.0076    -0.007
 Six-month bills               0.02         0.0203    -0.005
 Two-year note                 99-243/256   0.1512    -0.008
 Three-year note               99-200/256   0.3237    -0.029
 Five-year note                99-176/256   0.8146    -0.048
 Seven-year note               99-208/256   1.2783    -0.055
 10-year note                  99-240/256   1.6318    -0.051
 20-year bond                  99-244/256   2.2529    -0.052
 30-year bond                  100-196/256  2.3393    -0.048
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 GooU.S. 2-year dollar swap      9.75        -0.25    
 U.S. 3-year dollar swap        11.75         0.50    
 U.S. 5-year dollar swap         8.75         1.25    
 U.S. 10-year dollar swap       -3.00         1.00    
 U.S. 30-year dollar swap      -30.00         1.75    
 spread (Reporting by Herbert Lash; editing by Barbara Lewis, Kirsten
Donovan and Jonathan Oatis)