April 11, 2019 / 2:34 PM / 2 months ago

TREASURIES-Yields rise after U.S. data eases slowdown concerns

    * U.S. jobless claims, producer prices reports were solid
    * Markets still expect Fed to be on hold this year
    * Less conviction rate cut will occur this year -analysts
    * Focus on U.S. 30-year bond auction

 (Adds comment, table, byline, updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, April 11 (Reuters) - U.S. Treasury yields rose on
Thursday after generally solid  data on U.S. jobless claims and
producer prices that somewhat eased worries about a steep
downturn for the U.S. economy.
    The reports did not, however, sway expectations that the
Federal Reserve will hold interest rates steady throughout the
year, analysts said.
    Data on Thursday showed U.S. producer prices increased by
the most in five months in March, although underlying wholesale
inflation was tame. On the other hand, U.S. initial jobless
claims dropped to a 49-1/2-year low last week, pointing to
sustained labor market strength.
    "The reality is that inflation is stable and drifting down a
little bit, but not a lot," said Stan Shipley, fixed income
strategist at Evercore ISI in New York. "Until you get the core
PCE deflator well above 2.25 percent, or closer to 2.5 percent,
the Fed will more or less going to be on hold here."
    The core PCE (personal consumption expenditure) index is one
of the inflation measures that the Fed looks most closely at and
Shipley said that index currently shows inflation of 1.6 percent
to 1.7 percent.
    "We're a long way away from that level so we don't expect
the Fed do anything much from here," Shipley said.
    Following release of Thursday's data, analysts at Action
Economics said the Fed funds futures have declined, with
Treasuries selling off and the market re-thinking the potential
for rate cuts next year. 
    "The market is now suggesting the Fed is on hold this year,
as seen in the March FOMC minutes ... and is less than fully
priced for a rate cut by Q1 2020," said Action Economics.
    In mid-morning trading, U.S. 10-year note yields rose to
2.498%, up from 2.477% late on Wednesday.
    Yields on U.S. 30-year bonds were also higher, at 2.920%
, up from 2.904% on Wednesday.
    On the short end of the curve, U.S. 2-year yields edged up
to 2.354%, compared with Wednesday's 2.327%.
    Fed Vice Chairman Richard Clarida, New York Fed President
John Williams, and St. Louis Fed President James Bullard all
spoke on Thursday, and seemed to be preparing the market for a
potential economic slowdown.

    Their comments, however, had little impact on the Treasury
    Investors are now looking to the Treasury's auction of $16
billion in U.S. 30-year bonds, with market participants
expecting demand to be a little higher than average.
      April 11 Thursday 10:10AM New York / 1410 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             2.3725       2.4198    -0.007
 Six-month bills               2.3875       2.4501    -0.012
 Two-year note                 99-206/256   2.352     0.025
 Three-year note               99-216/256   2.3042    0.027
 Five-year note                99-38/256    2.3074    0.028
 Seven-year note               99-8/256     2.4018    0.027
 10-year note                  101-24/256   2.4988    0.022
 30-year bond                  101-144/256  2.9211    0.017
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap         9.00        -0.50    
 U.S. 3-year dollar swap         6.00         0.00    
 U.S. 5-year dollar swap         3.00        -0.25    
 U.S. 10-year dollar swap       -1.75         0.25    
 U.S. 30-year dollar swap      -24.75         0.50    
 (Reporting by Gertrude Chavez-Dreyfuss)
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