By Karen Brettell
NEW YORK, Jan 19 (Reuters) - Benchmark 10-year U.S.
Treasury yields bounced off four-month lows on Thursday as
investors waited on comments from Federal Reserve officials for
further guidance on Fed policy and as the European Central Bank
pushed back against market expectations of slowing rate hikes.
U.S. bond yields have fallen as investors fear that the U.S.
central bank will not be able to raise rates as high and for as
long as it has indicated if the economy soon enters a downturn.
Fed officials have stressed that they will need to raise
rates above 5% and hold them there for a period of time in order
to bring down inflation.
"The market's penciling in the view that a recession is
imminent and that's something that I think the Fed probably
disagrees with at the moment," said Gennadiy Goldberg, an
interest rate strategist at TD Securities in New York. "They do
see things as slowing down, but not so much that the U.S. is
currently in a recession or about to enter one."
Comments from Fed officials including Vice Chair Lael
Brainard and New York Fed president John Williams on Thursday
will be watched for signs of whether a 50 basis point interest
rate increase is on the table when the U.S. central bank
concludes its two-day meeting on Feb. 1.
Fed funds futures traders are overwhelming pricing for a 25
basis points increase at February's meeting. The Fed's benchmark
rate is also expected to peak at 4.89% in May, before declining
to 4.40% in December.
Benchmark 10-year yields were last at 3.397%,
after earlier dropping to 3.321%, the lowest since Sept. 13. The
yields have fallen from 3.905% at year-end, and from a 15-year
high of 4.338% on Oct. 21.
The yields moved back higher on Thursday after the European
Central Bank pushed back against market bets that it would slow
the pace of its interest rate hikes. Some see the recent bond
rally as also being overstretched for the near-term.
Two-year yields were last 4.105%, after earlier
reaching 4.041%, the lowest since Oct. 4.
Key parts of the yield curve also remained deeply inverted,
reflecting concerns about an imminent recession. The two-year,
10-year curve was last at minus 71 basis points,
while the spread between three-month and 10-year yields
was at minus 129 basis points.
Yields tumbled on Wednesday after data showed retail sales
fell by the most in a year in December, while producer price
inflation fell 0.5% in the month. A separate report also showed
that manufacturing output dropped 1.3% in December, the largest
decline since February 2021.
Data on Thursday showed that the number of Americans filing
new claims for unemployment benefits unexpectedly fell last
week, while U.S. single-family homebuilding rebounded in
December.
This week's bond rally has also been spurred by relief after
the Bank of Japan on Tuesday failed to lift its bond yield cap
as some had expected.
The Treasury will sell $17 billion in 10-year Treasury
Inflation-Protected Securities (TIPS) on Thursday.
January 19 Thursday 9:56AM New York / 1456 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 4.565 4.6818 0.031
Six-month bills 4.66 4.8381 0.029
Two-year note 100-68/256 4.1054 0.029
Three-year note 100-86/256 3.7549 0.036
Five-year note 101-210/256 3.4708 0.038
Seven-year note 102-180/256 3.4339 0.035
10-year note 106-8/256 3.3969 0.022
20-year bond 104-84/256 3.6899 0.028
30-year bond 107-232/256 3.5669 0.025
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 27.50 0.25
spread
U.S. 3-year dollar swap 14.50 -0.75
spread
U.S. 5-year dollar swap 5.00 -0.50
spread
U.S. 10-year dollar swap -3.25 -0.25
spread
U.S. 30-year dollar swap -38.75 -1.25
spread
(Editing by Jane Merriman)
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