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TREASURIES-U.S. yields dip as wage inflation shows sign of easing

Reuters · 01/06/2023 09:56
TREASURIES-U.S. yields dip as wage inflation shows sign of easing

Recasts, adds comment, details, bullets, U.S. Treasuries table, updates prices

U.S. jobs rise more than expected, but wage rise slows

U.S. rates market price in two 25-bps hikes in two meetings

U.S. two-year/10-year curve lessens inversion after jobs data

By Gertrude Chavez-Dreyfuss


- U.S. Treasury yields slipped on Friday, after data showed wages rose less than expected in December even though the economy created more jobs than anticipated, affirming the belief that the Federal Reserve could be a pause in its rate-hiking cycle.

A widely-tracked part of the U.S. yield curve, measuring the gap between yields on two- and 10-year Treasury US2US10=TWEB, ultimately lessened its inversion to -69.4 basis points (bps). The inversion went as deep as -79.20 bps right after the jobs report, the most inverted in three weeks.

An inverted curve typically foreshadows recession.

Data showed that U.S. payrolls rose 223,000 last month. Economists polled by Reuters had forecast payrolls increasing by 200,000 jobs.

Average hourly earnings rose 0.3% in December after 0.4% in the prior month. That lowered the year-on-year increase in wages to 4.6% from 4.8% in November.

"A report like this shows that some of the heat is coming off the jobs market," said Keith Buchanan, portfolio manager at GLOBALT Investments in Atlanta.

"The Federal Reserve has indicated that they are willing to pause and let cumulative effects of past rate hikes continue to filter through the system. I definitely think the Fed is looking for a moment to pause and this can lead them to do it. Of course, we would other reports to confirm this," he added.

In mid-morning trading, U.S. 10-year yields US10YT=RR fell 1.3 bps to 3.708%.

U.S. 30-year yields, on the other hand, rose 1.2 bps to 3.814% US30YT=RR.

On the shorter-end of the curve, U.S. two-year yields slid 4.7 bps to 4.406% US2YT=RR.

The rate futures market has priced in a 67% chance of a 25-bps hike month, and another hike of the same magnitude at the March meeting. FEDWATCH

The peak fed funds rates is seen at 5%, expected to be reached at the June policy gathering.

In other segments of the Treasuries market, the U.S. breakeven inflation rates were higher across the board.

The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) USBEI5Y=RR was last at 2.28%. The five-year breakeven rate suggested that investors expect inflation, as measured by the consumer price index, to average around 2.28% over the five years.

The 10-year TIPS breakeven rate USBEI10Y=RR was last at 2.239%, up 1.3 bps.



January 6 Friday 9:44 AM New York/1444 GMT


Price

Current Yield %

Net Change (bps)

Three-month bills US3MT=RR

4.5325

4.6463

0.024

Six-month bills US6MT=RR

4.68

4.8574

0.008

Two-year US2YT=RR

99-174/256

4.4205

-0.033

Three-year US3YT=RR

99-132/256

4.1764

-0.026

Five-year US5YT=RR

99-236/256

3.8922

-0.019

Seven-year US7YT=RR

100-88/256

3.8182

-0.013

10-year US10YT=RR

103-80/256

3.7197

-0.002

20-year bond US20YT=RR

100-60/256

3.9825

0.011

30-year bond US30YT=RR

103-96/256

3.8095

0.011





DOLLAR SWAP SPREADS




Last (bps)

Net Change (bps)


U.S. 2-year dollar swap spread

29.00

0.75


U.S. 3-year dollar swap spread

10.25

0.00


U.S. 5-year dollar swap spread

1.00

0.50


U.S. 10-year dollar swap spread

-5.25

0.00


U.S. 30-year dollar swap spread

-46.50

-0.25



(Reporting by Gertrude Chavez-Dreyfuss)

((gertrude.chavez@thomsonreuters.com; 646-301-4124; Reuters Messaging: gertrude.chavez.reuters.com@reuters.))