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TREASURIES-U.S. yields rise on potential higher rates in 2022

TREASURIES-U.S. yields rise on potential higher rates in 2022

reuters.com · 09/24/2021 10:05
TREASURIES-U.S. yields rise on potential higher rates in 2022

By Herbert Lash

- U.S. Treasury yields rose on Friday as a repricing of portfolios continues in the wake of the Federal Reserve's decision to soon begin tapering its massive bond purchases, a move that could lead to higher interest rates next year.

The yield on 10-year Treasury notes US10YT=RR was up 3.7 basis points to 1.447% in early trade, up from the closing yield of 1.304% on Wednesday.

The Fed should start to reduce its support for the economy in November and could start raising rates by the end of 2022 if labor markets continue to improve as expected, Cleveland Federal Reserve Bank President Loretta Mester said on Friday. nL1N2QQ0ZU

The hawkish tone set by Fed Chair Jerome Powell on Wednesday sparked a sell-off in Treasuries, which was heightened by the Bank of England saying on Thursday the case for higher rates "appeared to have strengthened".

"The combination of the Fed and the Bank of England meetings were the starting pistol," said Jim Vogel, interest rate strategist at FHN Financial in Memphis, Tennessee.

"In turns like this the sellers always have the first and the upper hand and as buying continues, you can see some of the sell-off perhaps begin to slow after next week," he said.

Investors are positioning for next week's auction of $61 billion in five-year notes and $62 billion in seven-year notes, which will set their price level, Vogel said.

For the five-year, now above 0.9% on its yield, it could rise to 1%, while for the seven the range is 1.25% to 1.3%. The Treasury also will auction $60 billion of two-year notes.

Investors remain wary of any fallout from heavily indebted China Evergrande 3333.HK and the potential for news over the weekend and the debt ceiling negotiations in Washington also are a concern, Vogel said.

The yield on the 30-year Treasury bond US30YT=RR was up 4.1 basis points to 1.965%.

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 117.9 basis points.

The two-year US2YT=RR U.S. Treasury yield, which typically moves in step with interest rate expectations, was up 0.9 basis points at 0.268%.

The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) US5YTIP=RR was last at 2.474%.

The 10-year TIPS breakeven rate US10YTIP=RR was last at 2.327%, indicating the market sees inflation averaging 2.33% a year for the next decade.


September 24 Friday 9:42AM New York / 1342 GMT


Price

Current Yield %

Net Change (bps)

Three-month bills US3MT=RR

0.0325

0.033

0.003

Six-month bills US6MT=RR

0.0475

0.0482

0.002

Two-year note US2YT=RR

99-186/256

0.2675

0.009

Three-year note US3YT=RR

99-134/256

0.5371

0.014

Five-year note US5YT=RR

99-4/256

0.9551

0.026

Seven-year note US7YT=RR

99-40/256

1.2525

0.034

10-year note US10YT=RR

98-44/256

1.4492

0.039

20-year bond US20YT=RR

97-68/256

1.916

0.045

30-year bond US30YT=RR

100-204/256

1.9646

0.041





DOLLAR SWAP SPREADS




Last (bps)

Net Change (bps)


U.S. 2-year dollar swap spread

11.25

-0.25


U.S. 3-year dollar swap spread

12.50

0.00


U.S. 5-year dollar swap spread

9.25

-0.75


U.S. 10-year dollar swap spread

2.25

-0.25


U.S. 30-year dollar swap spread

-24.25

0.25




(Reporting by Herbert Lash; editing by David Evans)

((herb.lash@thomsonreuters.com; 1-646-223-6019; Reuters Messaging: herb.lash.reuters.com@reuters.net))