TREASURIES-U.S. yields rise after poor Treasury auction

BY Reuters | TREASURY | 06/27/22 03:13 PM EDT
    (Updates with auction results)
    By Herbert Lash
    NEW YORK, June 27 (Reuters) - Treasury yields rose on Monday
as data on orders for durable goods and pending home sales
surprised to the upside, but the sale of two- and five-year
notes was weak as the market gauges the economy and Federal
Reserve efforts to tame inflation.
    The Treasury sold $97 billion in two- and five-year notes at
a time when the quarter ends on Thursday and the market is
grappling with how the Fed's plans to aggressively hike interest
rates will impact an economy that is showing signs of slowing.
    "It's a matter of almost $100 billion of supply getting
priced on a Monday before a holiday," said Tom di Galoma,
managing director at Seaport Global Holdings. "There's not a lot
of interest of putting fixed-income securities on bank balance
sheets at quarter-end."
    The quarter-end scenario is better for equities, he added.
    Yields at the middle of the curve rose above those on the
benchmark 10-year note.
    The 10-year note rose 7 basis points to 3.194%
and the two-year's yield, which can herald rate
expectations, gained 6.9 basis points to 3.126%.
    The five-year rose 8.1 basis points to 3.258% and
the seven-year rose 7.8 basis points to 3.268%.
    "The short end of the Treasury curve has been rich for
weeks. It did not come close to keeping up with the sell-off
that we saw in the forward money markets after the Fed meeting
two weeks ago and it hasn't really recovered since," said Jim
Vogel, interest rate strategist at FTN Financial in Memphis.
    Orders for U.S.-made capital goods and shipments increased
solidly in May, pointing to sustained strength in business
spending on equipment in the second quarter, while durable goods
orders advanced 0.7% after rising 0.4% in April.
    The National Association of Realtors (NAR) said on Monday
its Pending Home Sales Index, based on signed contracts, rose
0.7% last month to 99.9, rebounding from a two-year low in April
but plunged 13.6% in May on an annual basis.
    The data was for May, before the Fed hiked rates by 75 basis
points two weeks ago and is now expected to do the same in July
as part of efforts to corral soaring inflation. The Fed has
cited a strong labor market as reason that higher rates will not
force the economy to slow sharply or tilt into recession.
    However, rising rental rates are creating headwinds for
housing affordability, Moody's Analytics said on Monday.
    The percentage of rent-burdened metro areas, where the
rent-to-income ratio is above 30%, has jumped to 23 from eight
since late 2019. Rentals rose 2.5% in the first quarter and
likely will rise close to the same in the second quarter,
Moody's said.
    The auction of $46 billion in two-year notes sold at a
high-yield of 3.084%, while the $47 billion in five-year notes
sold at a high-yield of 3.271%.
    Another $40 billion of seven-year notes will be sold on
Tuesday, the last of the week's auctions before the long Fourth
of July holiday weekend.
    The yield on the 30-year Treasury bond was up
4.6 basis points to 3.304%.
    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 6.7 basis points.
    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
2.562%, indicating the market sees inflation averaging about
2.6% a year for the next decade.
    The U.S. dollar 5 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 2.535%.

     June 27 Monday 2:56 PM New York / 1856 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.65         1.6795    -0.008
 Six-month bills               2.48         2.5455    0.059
 Two-year note                 98-215/256   3.1255    0.069
 Three-year note               99-10/256    3.2172    0.073
 Five-year note                97-36/256    3.258     0.081
 Seven-year note               96-208/256   3.2679    0.078
 10-year note                  97-80/256    3.1941    0.070
 20-year bond                  95-144/256   3.5632    0.050
 30-year bond                  91-228/256   3.304     0.046

                               Last (bps)   Net
 U.S. 2-year dollar swap        31.00        -2.00
 U.S. 3-year dollar swap        14.25        -1.00
 U.S. 5-year dollar swap         2.50        -1.50
 U.S. 10-year dollar swap        7.25        -0.75
 U.S. 30-year dollar swap      -24.75        -0.75

 (Reporting by Herbert Lash
Editing by Mark Heinrich and Nick Zieminski)

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