TREASURIES-Treasury yields edge higher, 20-year auction well received

BY Reuters | TREASURY | 09/21/21 02:18 PM EDT
    (Corrects headline to say yields moved higher)
    By Herbert Lash
    NEW YORK, Sept 21 - Longer-dated U.S. Treasury yields edged higher on Tuesday after an auction
of 20-year bonds was well received and investors waited for the end of this week's Federal Reserve
meeting that may shed light on when its massive purchase of government debt will begin to ease.
    The yield on the benchmark 10-year Treasury note rose 1.4 basis points to 1.323%,
while yields on 20-year Treasuries narrowed, up 0.7 basis points.
    The sale of $24 billion in 20-year notes was "stellar," a characterization of several recent
longer-dated auctions, said Kim Rupert, managing director of global fixed-income analysis at
Action Economics LLC.
    Every metric of the auction was at or near record levels, with the exception of a
disappointing bid cover, Rupert said.
    The bonds were sold at a high yield of 1.795% with a bid-to-cover ratio, a gauge of demand, of
2.36.
    Stocks on Wall Street rose as investors put aside concerns about a potential collapse of
property developer China Evergrande Group (EGRNF) and the impact its $305 billion in obligations
could inflict on the Chinese economy and financial markets.
    Analysts played down the threat of Evergrande's troubles even as Beijing showed no signs of
intervening to stem any domino effects.
    The start of the Fed's two-day policy-setting meeting was of greater concern as analysts await
any signal regarding when the U.S. central bank will begin tapering its asset purchases.
    "The pace of reductions dictates to some degree the timing of the first Fed rate hike," said
Guy LeBas, chief fixed-income strategist at Janney Capital Management. "Markets have essentially
priced in a $10 billion-a-month pace of reduction."
    A $5 billion-a-month reduction in bond purchase would further delay expectations of the Fed's
first rate hike, while a $15 billion-a-month reduction would pull forward expectations of a first
rate hike, LeBas said.
    A steady reduction, spread out over several quarters, would likely minimize any disruption to
the financial markets.
    The Fed is likely to indicate the initiation of tapering in November at a rate that will be
firmly set so as to eliminate purchases by mid-2022, said John Vail, chief global strategist at
Nikko Asset Management, in a note.
    A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on
two- and 10-year Treasury notes, seen as an indicator of economic expectations, was
at 110.5 basis points.
    The two-year U.S. Treasury yield, which typically moves in step with interest rate
expectations, was unchanged at 0.216%.
    The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS)
 was last at 2.467%.
    The 10-year TIPS breakeven rate was last at 2.3%, indicating the market sees
inflation averaging about 2.31% a year for the next decade.

    September 21 Tuesday 2:10PM New York / 1810 GMT
                               Price                                             Current   Net
                                                                                 Yield %   Change
                                                                                           (bps)
 Three-month bills             0.025                                             0.0253    -0.005
 Six-month bills               0.045                                             0.0456    0.000
 Two-year note                 99-211/256                                        0.2159    0.000
 Three-year note               99-196/256                                        0.4543    0.002
 Five-year note                99-156/256                                        0.8309    0.010
 Seven-year note               100-4/256                                         1.1226    0.012
 10-year note                  99-84/256                                         1.3226    0.014
 20-year bond                  99-48/256                                         1.7987    0.006
 30-year bond                  103-64/256                                        1.8578    0.011

   DOLLAR SWAP SPREADS
                               Last (bps)                                        Net
                                                                                 Change
                                                                                 (bps)
 U.S. 2-year dollar swap        11.25                                              0.25
 spread
 U.S. 3-year dollar swap        12.25                                              0.25
 spread
 U.S. 5-year dollar swap        10.25                                              0.00
 spread
 U.S. 10-year dollar swap        2.50                                             -0.75
 spread
 U.S. 30-year dollar swap      -24.75                                             -0.75
 spread




 (Reporting by Herbert Lash; Additional reporting by Stefano Rebaudo in London; Editing by Lisa
Shumaker and Barbara Lewis)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

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