TREASURIES-U.S. yields drift higher as market in consolidation mode

BY Reuters | TREASURY | 01/13/22 10:36 AM EST
       By Gertrude Chavez-Dreyfuss
    NEW YORK, Jan 13 (Reuters) - U.S. Treasury yields edged up
on Thursday, with investors consolidating positions that pushed
2- and 5-year rates to two-year highs earlier in the week, as
they prepared for an interest rate hike in March and at least
two more by the end of 2022.
    Data showing a modest rise in U.S. producer prices in
December and an unexpected increase in weekly jobless claims had
minimal impact on Treasuries. The Federal Reserve is still
widely expected to tighten in two months, for the first time in
more than four years.
    Investors are also looking to the $22 billion U.S. 30-year
bond auction later on Thursday after a lackluster 10-year note
sale on Wednesday.
    "I think rates rose rapidly and people thought it's a buying
opportunity," said Stan Shipley, fixed income strategist at
Evercore ISI in New York.
    "There are signs that the Omicron virus is hitting
sensitive industries, such as leisure and restaurants, and
that's one reason claims were higher," he added.
    Data showed U.S. initial claims for state unemployment
benefits increased unexpectedly by 23,000 to a
seasonally-adjusted 230,000 for the week ended Jan. 8.
Economists polled by Reuters had forecast 200,000 applications
for the latest week.
    U.S. producer price inflation, meanwhile, slowed in
December, with the index for final demand rising just 0.2% last
month after surging 1.0% in November. Excluding food and energy,
goods prices rose 0.5% after increasing 0.8% in November.

    "People are thinking that this economy is not off to the
races and we're going to have a patch of weak economic data
here. At the end of the day, it really doesn't matter here. It
looks like the economy is still in pretty good shape," Shipley
said.
    In mid-morning trading, the benchmark U.S. 10-year yield
rose 1 basis point to 1.7358%
    Ahead of the auction, U.S. 30-year yields were also up 1
basis point at 2.081%.
    On the shorter-end of the curve, U.S. Treasury 2-year and
5-year yields, which reflect the market's interest rate outlook,
were flat at 0.9111% and 1.5025%, respectively.
    Fed funds futures imply at least three rate hikes by
the end of the year.
    Some Fed officials though such as St. Louis Federal Reserve
Bank President James Bullard, a Federal Open Market Committee
voter this year, pushed for four rate increases in 2022.

    Two closely-watched measures of the U.S. yield curve,
meanwhile, slightly steepened on Thursday, with the trend still
tilted towards flattening as investors braced for looming rate
hikes that should push short-term yields higher.
    The gap between 5-year and 30-yields hit 57.7 basis points
, while that between 2-year and 10-year yields was
82.3 bass points.

      January 13 Thursday 10:22AM New York / 1522 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.1175       0.1192    -0.003
 Six-month bills               0.275        0.2792    0.005
 Two-year note                 99-177/256   0.9091    0.002
 Three-year note               99-190/256   1.213     -0.002
 Five-year note                98-202/256   1.5042    0.012
 Seven-year note               98-6/256     1.677     0.011
 10-year note                  96-192/256   1.7358    0.011
 20-year bond                  97-212/256   2.1348    0.008
 30-year bond                  95-112/256   2.081     0.009

   DOLLAR SWAP SPREADS
                               Last (bps)   Net
                                            Change
                                            (bps)
 U.S. 2-year dollar swap        19.75         1.00
 spread
 U.S. 3-year dollar swap        15.75         1.50
 spread
 U.S. 5-year dollar swap         7.75         0.00
 spread
 U.S. 10-year dollar swap        5.75         0.25
 spread
 U.S. 30-year dollar swap      -17.25         0.25
 spread


 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Emelia
Sithole-Matarise)

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.

fir_news_article