TREASURIES-U.S. yields dip as wage inflation shows sign of easing

BY Reuters | TREASURY | 01/06/23 09:56 AM EST
    (Recasts, adds new comment, details, bullets, U.S. Treasuries
table, updates prices)

      U.S. jobs rise more than expected, but wage rise slows

      U.S. rates market price in two 25-bps hikes in next two

      U.S. two-year/10-year curve lessens inversion after jobs

    By Gertrude Chavez-Dreyfuss
       NEW YORK, Jan 6 (Reuters) - U.S. Treasury yields slipped
on Friday, after data showed wages rose less than expected in
December even though the economy created more jobs than
anticipated, affirming the belief that the Federal Reserve could
be nearing a pause in its rate-hiking cycle.
    A widely-tracked part of the U.S. yield curve, measuring the
gap between yields on two- and 10-year Treasury notes
, ultimately lessened its inversion to -69.4 basis
points (bps). The inversion went as deep as -79.20 bps right
after the jobs report, the most inverted in three weeks.
    An inverted curve typically foreshadows recession.
    Data showed that U.S. nonfarm payrolls rose 223,000 last
month. Economists polled by Reuters had forecast payrolls
increasing by 200,000 jobs.
    Average hourly earnings rose 0.3% in December after 0.4% in
the prior month. That lowered the year-on-year increase in wages
to 4.6% from 4.8% in November.
    "A report like this shows that some of the heat is coming
off the jobs market," said Keith Buchanan, portfolio manager at
GLOBALT Investments in Atlanta.
    "The Federal Reserve has indicated that they are willing to
pause and let cumulative effects of past rate hikes continue to
filter through the system. I definitely think the Fed is looking
for a moment to pause and this can lead them to do it. Of
course, we would need other reports to confirm this," he added.
    In mid-morning trading, U.S. 10-year yields fell
1.3 bps to 3.708%.
    U.S. 30-year yields, on the other hand, rose 1.2 bps to
    On the shorter-end of the curve, U.S. two-year yields slid
4.7 bps to 4.406%.
    The rate futures market has priced in a 67% chance of a
25-bps hike next month, and another hike of the same magnitude
at the March meeting.
    The peak fed funds rates is seen at 5%, expected to be
reached at the June policy gathering.
    In other segments of the Treasuries market, the U.S.
breakeven inflation rates were higher across the board.
    The breakeven rate on five-year U.S. Treasury
Inflation-Protected Securities (TIPS) was last at
2.28%. The five-year breakeven rate suggested that investors
expect inflation, as measured by the consumer price index, to
average around 2.28% over the next five years.
    The 10-year TIPS breakeven rate was last at
2.239%, up 1.3 bps.
      January 6 Friday 9:44 AM New York/1444 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             4.5325       4.6463    0.024
 Six-month bills               4.68         4.8574    0.008
 Two-year note                 99-174/256   4.4205    -0.033
 Three-year note               99-132/256   4.1764    -0.026
 Five-year note                99-236/256   3.8922    -0.019
 Seven-year note               100-88/256   3.8182    -0.013
 10-year note                  103-80/256   3.7197    -0.002
 20-year bond                  100-60/256   3.9825    0.011
 30-year bond                  103-96/256   3.8095    0.011

                               Last (bps)   Net
 U.S. 2-year dollar swap        29.00         0.75
 U.S. 3-year dollar swap        10.25         0.00
 U.S. 5-year dollar swap         1.00         0.50
 U.S. 10-year dollar swap       -5.25         0.00
 U.S. 30-year dollar swap      -46.50        -0.25

 (Reporting by Gertrude Chavez-Dreyfuss)

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.

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