TREASURIES-10-year yields hit fresh 5-month high after Chinese GDP data

BY Reuters | ECONOMIC | 04/16/24 10:28 AM EDT

(Adds analyst quote, updates market activity)

By David Randall

NEW YORK, April 16 (Reuters) - Benchmark U.S. 10-year Treasury yields climbed to fresh five-month highs on Tuesday as markets reevaluated how quickly the Federal Reserve may move to cut interest rates this year given signs of strength in the global economy.

San Francisco Federal Reserve Bank President Mary Daly said late on Monday that there is "no urgency" to cut rates considering the continued resilience in the labor market and U.S. economy. A report on Monday showed that March retail sales were more than double analysts' expectations, helping to push Treasury yields broadly higher.

Treasury yields move in the opposite direction to prices.

"The worst thing to do is act urgently when urgency is not required," Daly said at the Stanford Institute for Economic Policy Research.

Futures markets are now pricing in a total of 43 basis points in rate cuts by the end of the year, down from 48 yesterday and a steep drop from the more than 160 basis points in cuts expected at the start of January.

Faster-than-expected growth in the Chinese economy in the first quarter will likely continue to put pressure on Treasuries as investors fear a reaccleration in inflation, said Ipek Ozkardeskaya, senior analyst at Swissquote.

The world's second-largest economy grew 5.3% in January-March from the year earlier, official data showed, comfortably above a 4.6% forecast from analysts in a Reuters poll and up from the 5.2% expansion in the previous quarter.

"Provided that the economic growth and jobs market remain robust and inflation is heating up, the idea that the Fed's next move will be a rate hike starts cooking in many investors' minds," Ozkardeskaya said.

Bullish Treasury market investors have had little to point to since last week's hotter than expected inflation data, increasing the market's attention on Fed speakers, said Lawerence Gillum, Chief Fixed Income Strategist for LPL Financial. While New York Federal Reserve President John Williams said in a Bloomberg TV interview on Monday that he still expects cuts to happen this year, investors are looking for more dovishness from Fed chair Jerome Powell in a speech scheduled for later today.

"There's been no one willing to stand in front of this momentum which means that yields are likely headed higher still," Gillum said.

The yield on 10-year Treasury notes was up 4.8 basis points to 4.676%, its highest level since November 13th. The yield on the 30-year Treasury bond was up 4.6 basis points to 4.786%.

The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was up 2.3 basis points at 4.962%, slightly below its five-month highs hit on April 11th.

(Reporting by David Randall; Editing by Sharon Singleton, Editing by Franklin Paul)

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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