TREASURIES-Yields steady ahead of 10-year note auction

BY Reuters | ECONOMIC | 05/08/24 11:29 AM EDT

May 8 (Reuters) -

U.S. Treasury yields held firm on Wednesday on optimism that the Federal Reserve will lower rates more than once this year, but investors had little incentive to trade ahead of important inflation data next week.

New supply has been the theme in a week lacking in market-moving economic reports. The Treasury will sell $42 billion in 10-year notes later in the day, after Tuesday's well-received sale of 3-year Treasuries.

"It is a quiet week for data. There is no impetus to push the 10-year one way or the other ahead of CPI next week," said Lou Brien, market strategist at DRW Trading in Chicago.

The yield on benchmark U.S. 10-year notes rose 2.1 basis points from late Tuesday to 4.482%.

The 2-year note yield, which typically moves in step with interest rate expectations, was down 0.2 basis points to 4.8261%. The U.S. Treasury yield curve spread between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was almost unchanged at a negative 34.7 basis points.

The 30-year bond yield was up 2 basis points at 4.6247%. The Treasury will sell $25 billion of 30-year bonds on Thursday.

Yields fell sharply on Friday on news that the economy created fewer than expected jobs in April. The report accelerated a bond rally after the Federal Open Market Committee said the recent uptick in inflation and economic growth were unlikely to derail rate cuts this year. The Federal Reserve all but ruled out rate hikes.

The 10-year yield hit its lowest since April 10 on Tuesday, while on Friday the yield on the 2-year note fell to the lowest since April 5.

The April Producer Price Index report comes on Tuesday, and the closely followed CPI number next Wednesday, which will provide insight on whether inflation has resumed its downward trend toward the Fed's 2% target rate.

Fed speakers have a busy schedule this week. On Wednesday Fed Vice Chair Philip Jefferson was due to speak before midday, Boston Fed President Susan Collins at 11:45 a.m. EDT and Federal Reserve Board Governor Lisa Cook at 1:30 p.m. EDT.

In the fed funds futures market, traders are pricing in a 66% chance the Fed will pivot in September with a 25 basis point cut at that meeting, unchanged from Tuesday. The second cut is priced for December. (Reporting by Alden Bentley; Editing by Richard Chang)

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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