TREASURIES-U.S. yields slide in choppy trade, but uptrend seen intact

BY Reuters | TREASURY | 01/13/22 02:37 PM EST
       * U.S. 30-year auction shows solid results
    * Fed's Brainard joins chorus of officials to push for March
hike
    * Rise in U.S. producer prices slows in December
    * U.S. jobless claims rise unexpectedly
    * Fed funds futures imply at least 3 hikes in 2022

 (Recasts; adds new comment, 30-year auction results; updates
prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Jan 13 (Reuters) - U.S. Treasury yields on
Thursday drifted lower within narrow ranges, 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
the year.
    A solid auction of U.S. 30-year bonds on Thursday, following
a lackluster 10-year note sale the previous session, has spurred
bids in Treasuries, pushing yields lower.
    Data showing a modest rise in U.S. producer prices (PPI) 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.
    Fed Governor Lael Brainard on Thursday became the latest,
and most senior, U.S. central banker to signal that the Fed is
getting ready to start raising interest rates in March.

    "After the heat we've seen in PPI in recent months, it is
hard to get excited about the first month that surprised to the
downside," said Jim Vogel, senior rates strategist, at FHN
Financial at the Reuters Global Markets Forum.
    "We cannot trust any apparent moderation in inflation for
the next four months. Data is still too noisy to be confident
about a pause or less pressure on inventories and supply."
    Data showed U.S. producer price inflation, meanwhile, slowed
in December, with the index for final demand rising just 0.2%
after surging 1.0% in November. This was the smallest PPI gain
since November 2020. Excluding food and energy, prices rose 0.5%
after increasing 0.8% in November.
    U.S. initial claims for state unemployment benefits, on the
other hand, increased unexpectedly by 23,000 to 230,000 for the
week ended Jan. 8. Economists polled by Reuters had forecast
200,000 applications for the latest week.
    Fed funds futures on Thursday have implied at least
three rate hikes by the end of the year, a scenario that has
been priced in since last month.
    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.
    In early afternoon trading, the benchmark U.S. 10-year yield
slipped a basis point to 1.7164%
    Post-auction, U.S. 30-year yields were also down 1 basis
point at 2.0578%.
    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 to slightly lower on the day at 0.9010% and 1.4860%,
respectively.
    U.S. yields turned lower after a 30-year bond auction that
showed decent demand. The high yield though was  2.075% slightly
higher than expectations at the bid deadline, which meant that
investors wanted a little more premium to hold 30-year bonds.
    But the other metrics were sound, with a bid-to-cover ratio,
a gauge of demand of 2.35, higher from the December auction and
a little higher than the average of the previous six auctions.


      January 13 Thursday 2:25PM New York / 1925 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.12         0.1217    0.000
 Six-month bills               0.28         0.2843    0.010
 Two-year note                 99-181/256   0.901     -0.006
 Three-year note               99-198/256   1.2023    -0.013
 Five-year note                98-224/256   1.486     -0.006
 Seven-year note               98-40/256    1.6565    -0.010
 10-year note                  96-240/256   1.7147    -0.010
 20-year bond                  98-28/256    2.1172    -0.010
 30-year bond                  95-244/256   2.0571    -0.015

   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        15.50         1.25
 spread
 U.S. 5-year dollar swap         8.00         0.25
 spread
 U.S. 10-year dollar swap        5.75         0.25
 spread
 U.S. 30-year dollar swap      -17.50         0.00
 spread


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

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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