TREASURIES-U.S. yields gain as market angst eases a bit

BY Reuters | TREASURY | 05/13/22 02:42 PM EDT
    (Adds Fed comment, updates prices)
    By Herbert Lash
    NEW YORK, May 13 (Reuters) - Treasury yields rose on Friday,
reversing the week's rally in bond prices driven by the largest
weekly inflows since the COVID-19 pandemic slammed markets in
March 2020, as fears of a Federal Reserve policy error and
runaway inflation eased.
    The yield on 10-year Treasury notes rose 10.5
basis points to 2.922%, helped by Labor Department data that
showed import prices surprisingly were flat in April. That added
to other signs of a moderating pace of inflation.
    Economists polled by Reuters had forecast import prices,
which exclude tariffs, would climb 0.6% after a 2.9% surge in
March. Government data earlier this week showed monthly consumer
prices increased at the slowest pace in eight months, while the
gain in producer prices was the smallest since last September.
    "It's been extremely volatile. We're whipsawing between
inflation fears and then growth fears picked up. It's a tug of
war between those two dynamics," said Kim Rupert, managing
director of global fixed income at Action Economics.
    In a week that started with the 10-year note yield hitting
3.203%, within 6 basis points of the 3.261% decade peak set in
October 2018, BofA Global Research reported Treasuries saw $11.5
billion of inflows, the largest since March 2020.
    Yields on the benchmark Treasury bond have fallen more than
20 basis points this week after a sharp sell-off that pushed its
 yield up more than 125 basis points since early March. Bond
prices move contrary to the direction of their yield.
    The data on import prices was a nice surprise, mostly due to
weakness in petroleum, and year-over-year inflation will come
down, "so that might give a bit of reprise to the bond bulls and
put bond bears back on their heels," Rupert said.
    "We'll see intermittent rallies like we saw this week, where
the growth scare dominates and we see rates decline a bit," she
    The Fed will do what it needs to do to bring down very high
inflation, though how much will depend in part on how quickly
energy and other supply constraints dissipate, Minneapolis Fed
President Neel Kashkari said on Friday.
    The yield on the 30-year Treasury bond rose 11.1
basis points to 3.082%.
    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 31.5 basis points.
    The two-year U.S. Treasury yield, which typically
moves in step with interest rate expectations, was up 8.3 basis
points at 2.605%.
    The breakeven rate on five-year U.S. Treasury
Inflation-Protected Securities (TIPS) was last at
    The 10-year TIPS breakeven rate was last at
2.723%, indicating the market sees inflation averaging about
2.7% a year for the next decade.
    The U.S. dollar five-years forward inflation-linked swap
, seen by some as a better gauge of inflation
expectations due to possible distortions caused by the Fed's
quantitative easing, was last at 2.686%.

     May 13 Friday 2:25PM New York / 1825 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.975        0.9909    0.051
 Six-month bills               1.41         1.4396    0.028
 Two-year note                 99-205/256   2.6048    0.083
 Three-year note               99-222/256   2.7965    0.082
 Five-year note                99-96/256    2.8861    0.104
 Seven-year note               99-148/256   2.9424    0.107
 10-year note                  99-152/256   2.9221    0.105
 20-year bond                  86-120/256   3.3139    0.111
 30-year bond                  95-248/256   3.0819    0.111

                               Last (bps)   Net
 U.S. 2-year dollar swap        28.00         0.00
 U.S. 3-year dollar swap        13.25         0.25
 U.S. 5-year dollar swap         5.00        -0.75
 U.S. 10-year dollar swap        7.25        -1.00
 U.S. 30-year dollar swap      -24.00         0.75

 (Reporting by Herbert Lash; Editing by Richard Chang and Will

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.