TREASURIES-US yields mixed after 10-year's steep climb, but uptrend intact

BY Reuters | ECONOMIC | 09/26/23 04:07 PM EDT
    (Updates prices throughout, adds analyst comments, paragraphs 4
and 7-8)

      U.S. consumer confidence, new home sales fall

      U.S. yield curve reduces inversion

      U.S. two-year note auction shows decent demand

    By Gertrude Chavez-Dreyfuss
       NEW YORK, Sept 26 (Reuters) - U.S. Treasury yields were
mixed on Tuesday, with the 10-year yield pulling back from
16-year peaks touched the previous session and the yield curve
flattening a bit, as investors slowed the pace of selling bonds
and re-assessed how far rates have gone.
    The outlook for U.S. yields overall remained tilted to the
upside as the world's largest economy has performed better than
expected despite aggressive tightening from the Federal Reserve
over the last year and a half.
    After hitting its highest since October 2007, the 10-year
yield was little changed at 4.549%.
    "With this narrative of a more hawkish Fed at last week's
FOMC (Federal Open market Committee) announcement, it seems like
yields are likely to hang out here and could push a little bit
higher based on a near-term set of risks," said Zachary
Griffiths, senior investment grade strategist at CreditSights in
Charlotte, North Carolina.
    The U.S. yield curve, measuring the gap between two-year and
10-year yields, flattened or slightly increased
its inversion on Tuesday, though the overall trend remained that
of steepening.
    The steepening move suggested that investors are pricing in
the fact that the Fed is nearing the end of its tightening cycle
and the economy at some point could resume expanding after a
mild slowdown. The curve was last at -61.9 basis points (bps),
after steepening to -58.10 bps on Monday. That was the least
inverted since May.
    "We're not quite convinced we're headed to 5% in the
10-year," Griffiths said. "Right now, we're sticking to our call
for the Fed to be done hiking in 2023 and shifting to a pause in
2024. Overall, it's going to be centered around inflation, which
we believe will continue to move lower in the next three to six
    On Tuesday, the rate futures market priced in a 20% chance
of a rate hike in November and a 38% probability of tightening
in December, according to CME's FedWatch. A week ago, that was
29.4% and 41%, respectively.
    U.S. data on Tuesday was mixed and analysts pointed out that
on balance, the reports showed an economy outperforming
expectations, which for some should boost yields even higher.
    "The perception of the economy has shifted," said Stan
Shipley, managing director and macro research analyst at
Evercore ISI in New York. "It went from certainty of a near-term
recession towards a 'no landing' or 'soft landing' for the
economy. The economic data remains firmer than expected, though
several drags are present."
    U.S. annual home price growth accelerated for a second
straight month in July, with housing prices increasing 4.6% on a
year-over-year basis, up from a revised 3.2% increase in the
prior month, the Federal Housing Finance Agency (FHFA) said.
    Sales of new U.S. single-family homes, however, fell more
than expected in August, with new home sales plunging 8.7% to a
seasonally adjusted annual rate of 675,000 units last month,
data showed.
    U.S. consumer confidence also slid for a second consecutive
month in September, a survey showed on Tuesday, with the index
dropping to 103.0 this month from an upwardly revised 108.7 in
    The yield on the 30-year Treasury bond was up
3.1 bps at 4.690%.
    The two-year U.S. Treasury yield, which typically
reflects interest rate expectations, was down 0.4 bps at 5.127%.
    Tuesday's auction of U.S. two-year notes showed decent
demand, with the high yield at 5.085%, in line with the expected
rate at the deadline. The bid-to-cover ratio, a gauge of demand,
 was 2.73, less than the 2.94 in August, which Action Economics
said was largely due to the $3 billion increase in volume. That
ratio, however, was in line with the 2.72 average for the past

    September 26 Tuesday 3:46PM New York / 1946 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             5.34         5.4891    0.008
 Six-month bills               5.32         5.5582    0.005
 Two-year note                 99-194/256   5.1315    0.000
 Three-year note               99-108/256   4.8359    0.000
 Five-year note                98-238/256   4.6197    0.000
 Seven-year note               97-32/256    4.6142    0.003
 10-year note                  94-164/256   4.554     0.012
 20-year bond                  93-184/256   4.8714    0.024
 30-year bond                  90-244/256   4.6907    0.032

                               Last (bps)   Net
 U.S. 2-year dollar swap         0.00         0.00
 U.S. 3-year dollar swap         0.00         0.00
 U.S. 5-year dollar swap         0.00         0.00
 U.S. 10-year dollar swap        0.00         0.00
 U.S. 30-year dollar swap        0.00         0.00

 (Reporting by Gertrude Chavez-Dreyfuss; editing by Rami Ayyub)

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