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TREASURIES-Yields mixed as Fed keeps rates steady

TREASURIES-Yields mixed as Fed keeps rates steady

· 03/17/2021 17:11
TREASURIES-Yields mixed as Fed keeps rates steady

Updates yields, adds Fed details

By Karen Pierog and Yoruk Bahceli

- U.S. Treasuries yields on the longer end of the curve remained elevated, while yields on shorter-term debt fell on Wednesday after the Federal Reserve projected a bigger jump in economic growth with no interest rate hikes through 2023.

The benchmark 10-year yield US10YT=RR, which surged ahead of the Fed's statement to 1.689%, the highest level since January 2020, was last up 2.5 basis points at 1.6479%.

The 30-year bond yield, which jumped after the statement's release to 2.464%, the highest since August 2019, was last up 3 basis points at 2.4212%.

The U.S. central bank projected U.S. economic growth of 6.5% this year as the COVID-19 crisis winds down, up from the 4.2% projection at its December meeting. It also repeated its pledge to keep its target interest rate near zero for years to come. nL1N2LF2JI

"There's no indication that the Fed is preparing to act on rising inflation or the stronger economy we've been seeing," said Kim Rupert, managing director of global fixed income analysis at Action Economics in San Francisco.

Expectations that the $1.9 trillion U.S. fiscal stimulus package will boost economic growth and cause inflation to rebound have pushed government bond yields higher in recent weeks.

Rupert pointed out that long-term yields might have had "a knee-jerk reaction" move higher due to an increasing number of Federal Open Market Committee (FOMC) members eyeing a rate hike in 2022 or 2023.

Seven of 18 officials now expect to raise rates in 2023, compared to five in December. Four officials feel rates may need to rise as soon as next year, a change from zero as of the last projections in December.

Fed Chair Jerome Powell told reporters not to read too much into the so-called dot plot, where FOMC members make projections for future interest rates.

Eurodollar futures traders priced in a 90% chance of a Fed hike by March 2023 after the Fed statement, pushing back from December 2022. Traders still factored two additional rate increases in 2023, but the implied yields have come down a bit, suggesting a less firm conviction, compared with that before the Fed meeting. nL1N2LF30N

Powell also said it was too early to start talking about tapering Fed bond buying and that there would be advance notice ahead of such a move.

In addition, the Fed announced it will conduct overnight reverse repurchase agreement operations with a per-counter party limit of $80 billion per day, up from $30 billion per day starting on Thursday.

On the short end of the curve, yields on Treasury bills maturing in one, two, and three months fell earlier in the session to their lowest levels since March 2020, with the one-month yield US1MT=RR sinking as low as 0.0100% and the three-month yield US3MT=RR hitting 0.0150%.

The two-year Treasury yield US2YT=RR, which typically moves in step with interest rate expectations, was last 1.4 basis points lower at 0.137%.

A closely watched part of the yield curve, which measures the gap between yields on two- and 10-year Treasury notes US2US10=RR, steepened by about 4 basis points at 150.89 basis points.

The spread between five-year notes and 30-year bonds US5US30=RR, which widened to as much as 166.4 basis points in the wake of the Fed statement, was last up 6.85 basis points at 161.72 basis points.

March 17 Wednesday 4:36PM New York / 2136 GMT


Price

Current Yield %

Net Change (bps)

Three-month bills US3MT=RR

0.02

0.0203

0.002

Six-month bills US6MT=RR

0.0475

0.0482

-0.003

Two-year note US2YT=RR

99-250/256

0.137

-0.014

Three-year note US3YT=RR

99-214/256

0.3051

-0.029

Five-year note US5YT=RR

98-138/256

0.8015

-0.022

Seven-year note US7YT=RR

98-248/256

1.2805

0.005

10-year note US10YT=RR

95-60/256

1.6479

0.025

20-year bond US20YT=RR

92-232/256

2.3219

0.023

30-year bond US30YT=RR

88-108/256

2.4212

0.030





DOLLAR SWAP SPREADS




Last (bps)

Net Change (bps)


U.S. 2-year dollar swap spread

10.50

0.00


U.S. 3-year dollar swap spread

10.75

0.75


U.S. 5-year dollar swap spread

9.50

1.50


U.S. 10-year dollar swap spread

0.75

0.75


U.S. 30-year dollar swap spread

-29.50

1.75







(Reporting by Karen Pierog in Chicago and Yoruk Bahceli in Amsterdam
Additional reporting by Gertrude Chavez-Dreyfuss in New York
Editing by Jonathan Oatis and Matthew Lewis)

((karen.pierog@thomsonreuters.com; +1 312 408 8647; Reuters Messaging: karen.pierog.thomsonreuters.com@reuters.net))