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TREASURIES-Yields dip as inflation data, auctions eyed

05/10/2021 11:42
TREASURIES-Yields dip as inflation data, auctions eyed

By Chuck Mikolajczak

- Longer-dated U.S. Treasury yields dipped on Monday on the heels of Friday's disappointing payrolls report as investors eyed data later this week on inflation and auctions that will bring a burst of supply to the market.

Yields were whipsawed on Friday in the aftermath of the much weaker-than-anticipated April jobs numbers, which showed nonfarm payrolls increased by only 266,000 last month, well below the 770,000 for March and the 916,000 estimate. nL1N2MT2XDnL1N2MU21A

With investors closely watching for signs of higher prices, the Wednesday consumer price index release for April will be monitored as investors gauge if the U.S. Federal Reserve will begin to alter its stance on inflation.

The central bank has repeatedly said it views any inflation that occurs to be transitory. Chicago Federal Reserve president Charles Evans said on Monday that inflation rates of 2.5% would not be a concern if they lead to an average of 2% over time. nW1N2FT041

"That is kind of what we are looking at right now, optically a big market-risk event that ended up not being all that significant in terms of where the Fed’s future path is for policy," said Tom Simons, a money market economist at Jefferies in New York.

"CPI could be kind of the same thing because the Fed has been talking about looking through near-term inflation pressure … so we could be setting up for another inflation print that could come in higher than expected and immediately afterward the Fed dismisses it again and we are back to square one afterwards."

The yield on 10-year Treasury notes US10YT=RR was down 0.7 basis points to 1.572%. A burst of supply is expected this week, with the U.S. Treasury auctioning $58 billion of three-year notes on Tuesday, $41 billion of 10-year notes on Wednesday, and $27 billion of 30-year bonds on Thursday.

A survey by the Federal Reserve Bank of New York released on Monday showed U.S. consumers expect housing and others costs to rise in the near term as the economy bounces back from the coronavirus pandemic, but don't expect the climb to be sustained. nS0N2MK05M

Some market participants have downplayed economic data, noting that year-over-year comparisons are extreme due to the severe shutdown that began in the economy last March.

Still, inflation expectations moved higher on Monday, with the breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) US5YTIP=RR at 2.71% after touching its highest level since April 2011 earlier in the session and closing at 2.681% on Friday.

The 10-year TIPS breakeven rate US10YTIP=RR also rebounded after closing at 2.503% on Friday. It was last at 2.53% after climbing to its highest since April 2013 earlier in the day, indicating the market sees inflation averaging 2.5% a year for the next decade.

May 10 Monday 11:29AM New York / 1529 GMT


Price

Current Yield %

Net Change (bps)

Three-month bills US3MT=RR

0.01

0.0101

-0.005

Six-month bills US6MT=RR

0.035

0.0355

0.001

Two-year note US2YT=RR

99-245/256

0.1469

0.002

Three-year note US3YT=RR

100-66/256

0.2865

0.000

Five-year note US5YT=RR

99-242/256

0.7612

-0.010

Seven-year note US7YT=RR

100-40/256

1.2265

-0.009

10-year note US10YT=RR

95-248/256

1.5719

-0.007

20-year bond US20YT=RR

95-88/256

2.1658

0.005

30-year bond US30YT=RR

91-12/256

2.2915

0.015





DOLLAR SWAP SPREADS




Last (bps)

Net Change (bps)


U.S. 2-year dollar swap spread

10.00

0.00


U.S. 3-year dollar swap spread

12.50

-0.50


U.S. 5-year dollar swap spread

8.75

-0.50


U.S. 10-year dollar swap spread

-2.75

-0.50


U.S. 30-year dollar swap spread

-29.50

-1.00



(Reporting by Chuck Mikolajczak
Editing by Nick Zieminski)

(([email protected]; @ChuckMik; Reuters Messaging: [email protected]))