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TREASURIES-Yields rise on hawkish ECB, inflation data next catalyst

reuters.com · 06/09/2022 15:35
TREASURIES-Yields rise on hawkish ECB, inflation data next catalyst

Adds 30-year auction results, updates prices

By Karen Brettell

- U.S. Treasury yields rose on Thursday after the European Central Bank (ECB) signaled a series of upcoming interest rate hikes and before highly anticipated U.S. inflation data due on Friday.

The ECB said it will end bond purchases on July 1 then raise interest rates by 25 basis points later that month. It will hike again in September and may opt for a bigger move then if inflation continues to surprise. nL1N2XW0AB

“The market read the ECB as a little bit hawkish. The July hike with maybe a larger hike in September and then more to follow I think has pushed yields higher,” said Ben Jeffery, an interest rate strategist at BMO Capital Markets in New York.

Two-year yields US2YT=RR, which are highly sensitive to interest rate moves, got as high as 2.842% and benchmark 10-year note yields US10YT=RR reached 3.073%, both the highest since May 11.

The yield curve between two-year and 10-year yields US2US10=TWEB flattened to 22 basis points, the smallest yield gap since May 25.

Treasury supply has sent yields higher this week, while investors are also focused on data on Friday that is expected to show that consumer prices remained elevated in May.

“We’ve seen significant selling in Treasuries this week going into supply as well as tomorrow’s inflation data,” Jeffery said.

The Treasury Department saw solid demand for a $19 billion auction of 30-year bonds on Thursday, the final sale of $96 billion in coupon-bearing supply this week.

The bonds sold at a high yield of 3.185%, and the bid-to- cover-ratio was average at 2.35 times. nAQN15C9M8 USAUCTION28

Inflation data on Friday is expected to show that consumer prices rose 0.7% in May, while the core consumer price index (CPI), which excludes the volatile food and energy sectors, rose 0.5% in the month. USCPI=ECI, USCPF=ECI

Inflation expectations edged higher before the release, with breakeven rates on five-year Treasury Inflation-Protected Securities (TIPS), a measure of expected average annual inflation for the next five years, last at 3.10%.USBEI5Y=RR

The U.S. Federal Reserve is expected to raise rates by 50 basis points at its June meeting next week and again in July, with a similar move also likely in September, as it tackles persistently high price pressures. FEDWATCH

Data on Thursday showed that the number of Americans filing new claims for unemployment benefits increased more than expected last week, but remained at a level consistent with a tight labor market. nL1N2XW16C


June 9 Thursday 3:02PM New York / 1902 GMT


Price

Current Yield %

Net Change (bps)

Three-month bills US3MT=RR

1.2525

1.2739

0.010

Six-month bills US6MT=RR

1.7675

1.8081

0.038

Two-year note US2YT=RR

99-100/256

2.8195

0.046

Three-year note US3YT=RR

99-162/256

3.0039

0.044

Five-year note US5YT=RR

97-250/256

3.0667

0.035

Seven-year note US7YT=RR

97-232/256

3.0859

0.024

10-year note US10YT=RR

98-144/256

3.0437

0.015

20-year bond US20YT=RR

97-216/256

3.3997

-0.002

30-year bond US30YT=RR

94-88/256

3.1689

-0.010





DOLLAR SWAP SPREADS




Last (bps)

Net Change (bps)


U.S. 2-year dollar swap spread

37.00

2.50


U.S. 3-year dollar swap spread

18.50

1.50


U.S. 5-year dollar swap spread

5.50

0.75


U.S. 10-year dollar swap spread

6.75

-0.25


U.S. 30-year dollar swap spread

-22.75

-0.50





(Reporting by Karen Brettell; editing by Chizu Nomiyama and Jonathan Oatis)

((karen.brettell@thomsonreuters.com))