TREASURIES-Yields fall in cautious market ahead of Fed meeting
Recasts, updates yields, adds analyst comments
By Karen Pierog
CHICAGO, March 15 (Reuters) - Longer-term U.S. Treasury yields tumbled and the yield curve flattened on Monday as investors turned cautious ahead of this week's Federal Reserve meeting and upcoming economic data.
Yields rose sharply late last week, lifted by optimism over the U.S. economy and increased debt supply expectations with the enactment of a $1.9 trillion pandemic-related federal fiscal stimulus plan.
The benchmark 10-year yield US10YT=RR, which reached 1.642% on Friday, its highest level since February 2020, was last down 2.8 basis points at 1.6073%.
"After the moves we saw last week, I wouldn't be surprised if there was a little bit of short covering and position alignment ahead of retail sales tomorrow and the Fed meeting on Wednesday," said Ben Jeffery, a strategist at BMO Capital Markets in New York, noting that trading volume was on the lighter side.
The U.S. Commerce Department on Tuesday is due to release February retail sales data following January's 5.3% surge.
Meanwhile, the Fed begins its two-day meeting on Tuesday.
"Until the meeting, I think there's not going to be any really high conviction to push a trade one way or another," Jeffery said. "People are going to wait to see what the updated forecasts look like, the updated language looks like and the press conference as well to see if (Fed Chair Jerome) Powell has changed his tone at all."
Fed policymakers are not likely to detour from their current monetary roadmap despite an expected forecast of rapid economic growth in 2021 in the wake of the coronavirus vaccine rollout and the massive stimulus money heading to taxpayers and others. nL1N2L82OT
"What we expect is that there is not going to be any change at this point," said Kelly Ye, director of research at IndexIQ, a unit of New York Life Investments.
She added that while the market is pricing in probably three rate hikes in 2023, Fed officials have been saying "they haven't seen any sustainable economic growth and reduction in the unemployment rate yet, so they're going to be very accommodative in the near future."
This week will also bring more supply with a $24 billion, 20-year bond auction on Tuesday and a $13 billion, 10-year Treasury Inflation-Protected Securities auction on Thursday.
Demand will be scrutinized after last week's selloff in U.S. government bonds fueled worries about how high yields could rise without destabilizing the stock market. nL1N2LA1T0
The two-year Treasury yield US2YT=RR, which typically moves in step with interest rate expectations, was last up less than a basis point at 0.153%.
A closely watched part of the yield curve, which measures the gap between yields on two- and 10-year Treasury notes US2US10=RR, flattened by 1.61 basis points to 145.78 basis points, its steepest level since 2015.
March 15 Monday 2:57PM New York / 1957 GMT
Price | Current Yield % | Net Change (bps) | |
Three-month bills US3MT=RR | 0.025 | 0.0253 | -0.005 |
Six-month bills US6MT=RR | 0.0475 | 0.0482 | 0.002 |
Two-year note US2YT=RR | 99-242/256 | 0.153 | 0.002 |
Three-year note US3YT=RR | 99-190/256 | 0.3365 | -0.006 |
Five-year note US5YT=RR | 98-102/256 | 0.8305 | -0.016 |
Seven-year note US7YT=RR | 99-4/256 | 1.2733 | -0.019 |
10-year note US10YT=RR | 95-152/256 | 1.6073 | -0.028 |
20-year bond US20YT=RR | 93-152/256 | 2.2768 | -0.037 |
30-year bond US30YT=RR | 89-108/256 | 2.3706 | -0.030 |
DOLLAR SWAP SPREADS | |||
| Last (bps) | Net Change (bps) | |
U.S. 2-year dollar swap spread | 10.00 | -0.25 | |
U.S. 3-year dollar swap spread | 10.00 | -0.25 | |
U.S. 5-year dollar swap spread | 8.00 | 0.00 | |
U.S. 10-year dollar swap spread | 1.00 | 0.00 | |
U.S. 30-year dollar swap spread | -30.75 | 0.50 | |
(Reporting by Karen Pierog; Editing by Will Dunham and Sonya Hepinstall)
((karen.pierog@thomsonreuters.com; +1 312 408 8647; Reuters Messaging: karen.pierog.thomsonreuters.com@reuters.net))