TREASURIES-U.S. 10-year yield surges to more than 12-year high

BY Reuters | TREASURY | 09/27/22 11:05 AM EDT
       By Gertrude Chavez-Dreyfuss
       NEW YORK, Sept 27 (Reuters) - Benchmark U.S. 10-year
Treasury yields rose to their highest level in more than 12
years as investors braced for higher interest rates that could
well be here for longer amid hawkish comments from Federal
Reserve officials that affirmed their commitment to stamping out
persistently high inflation.
    U.S. 10-year yield  hit 3.974%, the highest
since April 2010. It was last up 8.3 basis points (bps) at
3.9717%.
    Since the beginning of August, the 10-year yield has soared
by 145 bps.
    U.S. 30-year yields also touched a milestone on Tuesday,
advancing to 3.81%, its strongest level since
January 2014. The yield was last up 10.5 bps at 3.799%.
    "It feels like we are in the middle of a yield melt-up.
Valuations are getting to the point of looking relatively
attractive." said Joseph Kalish, chief global macro strategist
at Ned Davis Research.
    "As we have noted previously, yields tend to peak before the
end of the tightening  cycle. We're not at the end of the cycle,
but we could be there early next year," he added.
    Chicago Fed President Charles Evans and St. Louis Fed
President James Bullard sounded the hawkish alarm on Tuesday,
lifting rates higher.
    Evans said the Fed will need to raise interest rates to a
range between 4.50% and 4.75%, a more aggressive stance than he
has previously embraced. Evans will be a voter at next year's
Federal Open Market Committee (FOMC).
    Bullard, a current voter at this year's policy meeting, said
he sees the likely peak for policy rate at 4.5%, and noted that
the Fed will have to stay at the higher rate for some time.
    A closely watched part of the U.S. Treasury yield curve
measuring the gap between yields on two- and 10-year Treasury
notes, remained inverted at -36.2 basis points.
This curve has been inverted since July 5.
    An inversion of this specific yield curve is widely viewed
as a precursor to recession.
    The two-year U.S. Treasury yield, which typically
moves in step with interest rate expectations, was down 2.7
basis points at 4.283%. On Monday, it surged to 15-year high of
4.312%
    U.S. data on Tuesday were supportive overall of higher
interest rates and growth.
    New orders for U.S.-manufactured capital goods increased
more than expected in August, suggesting that businesses
remained keen to spend on equipment despite higher interest
rates, which could keep the economy on a moderate growth path.
    Sales of new U.S. single-family homes also showed a surprise
increase in August. New home sales surged 28.8% to a seasonally
adjusted annual rate of 685,000 units, data showed. July's sales
pace was revised higher to 532,000 units from the previously
reported 511,000 units.
      September 27 Tuesday 10:51AM New York / 1451 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             3.265        3.3382    -0.039
 Six-month bills               3.8425       3.973     -0.037
 Two-year note                 99-239/256   4.285     -0.025
 Three-year note               97-160/256   4.3624    -0.034
 Five-year note                95-118/256   4.1536    -0.005
 Seven-year note               94-64/256    4.0867    0.021
 10-year note                  90-120/256   3.9227    0.043
 20-year bond                  90-100/256   4.0854    0.065
 30-year bond                  86-64/256    3.7709    0.074

   DOLLAR SWAP SPREADS
                               Last (bps)   Net
                                            Change
                                            (bps)
 U.S. 2-year dollar swap        30.50        -3.75
 spread
 U.S. 3-year dollar swap         5.50        -2.00
 spread
 U.S. 5-year dollar swap         3.50        -1.00
 spread
 U.S. 10-year dollar swap        1.75         0.50
 spread
 U.S. 30-year dollar swap      -40.00        -0.50
 spread

 (Reporting by Gertrude Chavez-Dreyfuss; editing by Jonathan
Oatis)

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.

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