CASH-Yields surge after Fed’s Powell takes hawkish tilt
Band Karen Brettell
NEW YORK, December 1 (Reuters) – U.S. Treasury yields rebounded on Wednesday, with shorter-dated bond yields making the biggest gains, investors adjusting to the likelihood that the U.S. Federal Reserve will accelerate the pace of its bond cut and raise rates soon. mid-2022.
Yields had fallen on Tuesday as concerns about the spread of the Omicron coronavirus variant dampened risk appetite and pushed stocks down sharply.
But that focus changed after Fed Chairman Jerome Powell said U.S. central bankers would discuss in December whether to end their bond purchases a few months earlier than expected, underlining a strong economy. , stalled labor force growth and high inflation expected to last until mid-2022.
“Yesterday, Powell, in his hawkish lean, removed much of the potential uncertainty in terms of the Fed’s upcoming rhetoric, as he essentially confirmed that the hawkish shift in stance we’ve heard from other officials since the last FOMC remains intact, â€said Jonathan Cohn, head of rate trading strategy at Credit Suisse in New York.
10-year benchmark returns US10YT = RR rose 4 basis points to 1.482%, after falling to 1.412% on Tuesday, the lowest since September 24.
Tuesday’s rally was likely exacerbated by month-end demand for longer-term debt, Cohn said.
Two-year returns US2YT = RR jumped 7 basis points to 0.591%. They are trading just below a high of 0.687% reached on November 23, which was the highest since March 2020.
The yield curve between 2-year and 10-year bonds US2US10 = TWEB was 89 basis points. It stabilized from 130 basis points in October, with investors forecasting more rate hikes on short- and medium-term bonds, while longer-term debt remains relatively in demand amid expectations that rate hikes will dampen inflation and long-term growth.
Futures traders are almost fully anticipating a rate hike at the June 2022 Fed meeting. 0 # FF:
Treasury bills showed little reaction to the ADP national employment report on Wednesday, which showed private payrolls increased by 534,000 jobs last month. The next major economic release in the United States will be Friday’s Jobs Report for November.
Volatility is expected to remain high at least until the end of the year as the market grapples with low liquidity and uncertainty surrounding the future path of Fed rates. The ICE BofA MOVE index .MOVEMENT, a measure of the volatility of U.S. Treasuries, is trading at its highest level since March 2020.
Inflation expectations have also fallen, with investors taking into account the greater likelihood of faster rate hikes.
Equilibrium rate on five-year inflation-protected Treasury securities US5YTIP = RR fell to 2.79% from around 3.20% in mid-November.
December 1 Wednesday 9:36 am New York / 1436 GMT
Price
Current yield%
Net change (bp)
Three-month invoices US3MT = RR
0.055
0.0558
0.003
Six-month invoices US6MT = RR
0.1075
0.1091
0.005
Two year ticket US2YT = RR
99-210 / 256
0.5908
0.065
Three year note US3YT = RR
99-158 / 256
0.8816
0.070
Five year note US5YT = RR
100-56 / 256
1.2047
0.058
Seven year note US7YT = RR
100-154 / 256
1.4094
0.045
10 year note US10YT = RR
99-4 / 256
1.4817
0.041
20-year bond US20YT = RR
101-184 / 256
1.8961
0.048
30-year bond US30YT = RR
101-64 / 256
1.8207
0.035
DOLLAR EXCHANGE DIFFERENCES
Last (bps)
Net change (bp)
2-year US dollar swap spread
23.50
-1.75
3-year US dollar swap spread
22.00
-1.50
5-year US dollar swap spread
11.25
-1.00
10-year US dollar swap spread
6.25
-0.75
30-year US dollar swap spread
-17.00
-1.00
(Edited by Mark Heinrich and Peter Graff)
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.