US yields rise for day 2 as markets brace for Fed hikes this year

  • US 5-year yield at its highest since February 2020
  • US 10-year benchmark yield hits six-week high
  • US 30-year rate climbs to over 2 months
  • US yield curves steepen
  • Corporate issues continue to weigh on Treasury prices

NEW YORK, Jan.4 (Reuters) – U.S. Treasury yields for most maturities rose in the second trading session of the year on Tuesday, as bond investors braced for an interest rate hike of the Federal Reserve by mid-year to curb stubbornly high inflation.

Yields on 5-year US bonds, which reflect expectations of higher rates, hit their highest level since February 2020. Yields on 2-year US bonds, another maturity that reflects the market outlook for rates interest rates, reached their highest level since March 2020 on Monday, before slipping 2 basis points on Tuesday to 0.7619%.

Benchmark 10-year yields, meanwhile, peaked in six weeks, while 30-year yields peaked in more than two months.

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“The move in Treasuries is recognition that the Fed has moved forward the cut schedule and is going to raise rates sooner than many people expect,” said David Petrosinelli, managing director and senior trader at the InspereX broker in New York. .

“The pricing pressures aren’t really going away. It’s not just about the supply chain. There is a real labor shortage and wage growth will continue to disappoint on the upside. which will force the hand of the Fed. “

Fed funds rate futures on Tuesday predicted about a 66% chance of a quarter-percentage point tightening by March, with investors fully factoring in that scenario by May.

The US yield curve, for its part, steepened, with the spread between 5-year rates and 30 to 72 basis points, the widest in more than a month. The US 2-year / 10-year yield curve was also steeper at 91.8 basis points, the widest in about five weeks.

“What this steepening means is that there isn’t a lot of belief in the market that the Fed will raise rates so quickly that they will actually slow the economy, which would actually flatten the curve.” , said Petrosinelli.

In afternoon trading, US 5-year yields hit 1.3980%, their highest level since February 2020, they were last flat at 1.3687%.

The 10-year yield hit a six-week high at 1.686% and rose 3 basis points for the last time to 1.6612%.

US 30-year yields hit 2.103%, their highest since the end of October, and rose 6 basis points for the last time to 2.0780%.

Market participants also said massive corporate issuance continued to undermine Treasury prices as companies looked to take advantage of historically low rates before the Fed hiked them this year. Dealers who underwrite bond transactions must sell treasury bills to lock in the cost of borrowing rate.

About $ 11 billion in corporate bond offerings were launched on Monday, weighing on Treasuries and pushing yields higher.

Deere, Nomura, UBS, Santander UK Group, American Electric Power, among others, have also launched or announced corporate bond offerings, Action Economics said, adding to six financial firms that announced overnight. .

Meanwhile, Tuesday’s data showing a slowdown in US manufacturing in December amid weak demand for goods briefly depressed yields. The Institute for Supply Management’s national factory activity index fell to 58.7 last month, the lowest level since last January and followed by 61.1 in November. Read more

ISM data, however, was offset by a report that said the number of Americans voluntarily leaving their jobs hit a record 4.5 million in November, an indication that labor would cost a lot. more expensive for employers than before the pandemic. read more This should keep the Fed on track to raise rates several times this year.

January 4 Tuesday 3:21 p.m. New York / 2021 GMT

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Reporting by Gertrude Chavez-Dreyfuss; Editing by Susan Fenton and Nick Zieminski

Our Standards: Thomson Reuters Trust Principles.


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