TREASURIES-Yields edge near year's highs as investors expect Fed to act on inflation

BY Reuters | ECONOMIC | 11/23/21 04:42 PM EST
    (Updates prices throughout)
    By David Randall
    NEW YORK, Nov 23 (Reuters) - U.S. Treasury yields edged
higher in choppy trading in a holiday-shortened week on Tuesday
as investors prepared for the Federal Reserve to become more
aggressive in fighting inflation after President Joe Biden
nominated Chair Jerome Powell for a second term.
    The yield on 10-year Treasury notes was up 5.7
basis points to 1.682%, its highest level in a week and less
than 10 basis points below the high for the year, hit in March.
The yield on the 30-year Treasury bond was up 6.2
basis points to 2.040%.
    The move higher in yields was not uniform, however. The
two-year U.S. Treasury yield, which typically moves
in step with interest rate expectations, was down 1.4 basis
points at 0.616% after touching its highest level since March
2020 on Monday.
    "The pressure on the Fed to react to the recent acceleration
in inflation is building, not just from the so-called inflation
vigilantes and the hawks on the Committee, but also from the
progressive academics and from their peers at other central
banks," said Steven Ricchiuto, U.S. chief economist at Mizuho
Securities.
    Not all investors expect the Fed to act against inflation in
the next few months. The Treasury Department auctioned $59
billion in 7-year notes on Tuesday, with direct bidders taking
their highest percentage of the inventory since December 2019.
    That level of investor interest could mean that the recent
rise in yields may be short-lived, said Thomas Simons, an
economist at Jefferies.
    "The strong auction bid suggests that the market might
finally be finding some footing," he said. "Does it make sense
to price in more rate hikes over the next couple of years? We do
not think so, and it looks like Direct bidders agree. We expect
that the market will start to clean up the mess here, and it
will trade well after Thanksgiving and into month-end."
    The yield curve slightly steepened, with spreads between 5-
and 30-year Treasuries rising on Tuesday after touching their
lowest levels since March 2020 the previous day.
    The yield on 5-year Treasury Inflation Protected Securities
slipped to end at -1.695% and the yield on the 10-year TIP
closed at -0.96, its highest end of day yield since Nov 3.

    November 23 Tuesday 4:17PM New York / 2117 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.0525       0.0532    0.000
 Six-month bills               0.075        0.0761    0.000
 Two-year note                 99-197/256   0.6161    -0.014
 Three-year note               99-106/256   0.9502    0.011
 Five-year note                99-136/256   1.3472    0.023
 Seven-year note               98-152/256   1.5899    0.041
 10-year note                  97-48/256    1.6824    0.057
 20-year bond                  98-116/256   2.0952    0.070
 30-year bond                  96-76/256    2.0408    0.063

   DOLLAR SWAP SPREADS
                               Last (bps)   Net
                                            Change
                                            (bps)
 U.S. 2-year dollar swap        22.50        -4.00
 spread
 U.S. 3-year dollar swap        21.00        -0.50
 spread
 U.S. 5-year dollar swap        10.00        -0.75
 spread
 U.S. 10-year dollar swap        5.25        -0.25
 spread
 U.S. 30-year dollar swap      -17.50         0.00
 spread


 (Reporting by David Randall; editing by Barbara Lewis, Mark
Heinrich and Dan Grebler)

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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