TREASURIES-U.S. yields retreat in choppy trade, but uptrend firmly in place

BY Reuters | TREASURY | 01/13/22 04:18 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

 (Adds new comment, updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Jan 13 (Reuters) - U.S. Treasury yields on
Thursday fell, as risk appetite soured with stocks lower and
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.

    "We cannot trust any apparent moderation in inflation for
the next four months," Jim Vogel, senior rates strategist, at
FHN Financial, said at the Reuters Global Markets Forum. "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 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,
meanwhile, increased unexpectedly by 23,000 to 230,000 for the
week ended Jan. 8. Economists polled by Reuters had forecast
200,000 applications.
    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 Fed President
James Bullard, a Federal Open Market Committee voter this year,
pushed for four rate increases in 2022.
    Scott Skyrm, executive vice president in fixed income and
repo at Curvature Securities, said the fed funds market provides
a good gauge on the terminal rate, or the policy rate's peak. He
noted that fed funds futures contracts show a terminal rate of
1.60%.
    "Assuming fed funds in the middle of the target range, that
brings the terminal fed funds target range at 1.50% to 1.75%.
That's a total of six tightenings between March and November
2023," he said.
    In late afternoon trading, the benchmark U.S. 10-year yield
slipped 2 basis points to 1.6988%.
    Post-auction, U.S. 30-year yields were down 3 basis points
at 2.0413%.
    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 both down 2 basis points at 0.8909% and 1.4662%
, respectively.
    U.S. yields turned lower after a 30-year bond auction showed
decent demand. The high yield, though, was 2.075%, slightly
higher than expectations at the bid deadline, which meant
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 than the December auction and
the average of the previous six auctions.

      January 13 Thursday 4:12PM New York / 2112 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.12         0.1217    0.000
 Six-month bills               0.275        0.2792    0.005
 Two-year note                 99-186/256   0.8909    -0.016
 Three-year note               99-208/256   1.189     -0.026
 Five-year note                98-248/256   1.4662    -0.026
 Seven-year note               98-76/256    1.6348    -0.031
 10-year note                  97-28/256    1.6953    -0.030
 20-year bond                  98-124/256   2.0937    -0.033
 30-year bond                  96-124/256   2.0327    -0.039

   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        5.50         0.00
 spread
 U.S. 30-year dollar swap      -17.75        -0.25
 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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