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TREASURIES-Yield curve steepens on Washington spending plans, jobs data

· 02/04/2021 14:19
TREASURIES-Yield curve steepens on Washington spending plans, jobs data

Updates with market activity, analyst comment

By Ross Kerber

- Longer-term U.S. Treasury yields were higher on Thursday as investors positioned for a large pandemic relief package from Washington and a stabilizing U.S. labor market.

The benchmark 10-year yield US10YT=RR was up a basis point at 1.1409% in afternoon trading.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes US2US10=RR, seen as an indicator of economic expectations, was at 103 basis points, about a basis point higher than Wednesday's close. Earlier it reached 104 basis points, the most since May 2017.

The risk-on trading tracked equities trading as Wall Street's main indexes climbed. nL4N2KA3ZT

Tom Simons, money market economist for Jefferies LLC, said the steeper yield curve reflected a stronger-than-expected jobs report and expectations that Democrats in Washington would pass a $1.9 trillion COVID-19 relief package without Republican support.nL1N2K91C8

Both factors pointed to improving economic activity. Inflationary pressure also seemed to be rising, he said, although inflation will be tricky to measure because springtime price comparisons will be with data taken during 2020's economic shutdowns in many areas.

Forces like foreign demand for U.S. Treasuries stabilized their prices on Thursday and kept yields from rising further, said Kim Rupert, senior economist for Action Economics.

"Considering the rally in Treasuries and the extent of the spending proposals, one would think yields would be even higher," she said.

The ADP National Employment Report on Wednesday showed private payrolls increased by 174,000 jobs last month, more than expected.nL1N2K827W

The yield on the three-month U.S. Treasury note US3MT=RR was at 0.0355%, down a basis point and its lowest since March. It has fallen steadily in recent days, which Action's Rupert said reflected lower bill issuance.

The two-year US2YT=RR U.S. Treasury yield, which typically moves in step with interest rate expectations, was down less than a basis point at 0.1152% in afternoon trading.

The 20-year US20YT=RR U.S. Treasury yield was at 1.7396%, up 2 basis points and its highest since the note was re-introduced last May.


February 4 Thursday 2:01PM New York / 1901 GMT


Price

Current Yield %

Net Change (bps)

Three-month bills US3MT=RR

0.035

0.0355

-0.010

Six-month bills US6MT=RR

0.0525

0.0532

-0.008

Two-year note US2YT=RR

100-5/256

0.1152

-0.002

Three-year note US3YT=RR

99-208/256

0.1889

0.000

Five-year note US5YT=RR

99-148/256

0.4607

0.002

Seven-year note US7YT=RR

99-152/256

0.8099

0.002

10-year note US10YT=RR

97-140/256

1.1409

0.010

20-year bond US20YT=RR

93-236/256

1.7396

0.019

30-year bond US30YT=RR

93-24/256

1.931

0.019





DOLLAR SWAP SPREADS




Last (bps)

Net Change (bps)


U.S. 2-year dollar swap spread

8.50

0.25


U.S. 3-year dollar swap spread

9.25

0.25


U.S. 5-year dollar swap spread

11.75

0.50


U.S. 10-year dollar swap spread

7.00

1.00


U.S. 30-year dollar swap spread

-22.25

1.00









(Reporting by Ross Kerber in Boston; Editing by Andrea Ricci and Diane Craft)

((ross.kerber@thomsonreuters.com; (617) 856 4341; Reuters Messaging: Ross.Kerber.Reuters.com@Reuters.net))