(Updates with market activity, analyst comment)
By Ross Kerber
Nov 8 (Reuters) - Traders sent most U.S. Treasury yields
higher on Monday after Congress passed a $1 trillion
infrastructure bill and demand was soft for three-year notes at
auction.
The benchmark 10-year yield was up 3.5 basis
points at 1.488%.
Analysts said the trading reflected factors including the
passage of a long-delayed $1 trillion infrastructure bill in
Washington over the weekend and a response to the volatile
session on Friday after a strong jobs report that sent the
benchmark note as low as 1.436%.
"Friday’s drop in yields was a little too much, too quickly,
and now the market’s trying to find its equilibrium," said Bryn
Mawr Trust analyst Jim Barnes.
Stocks were mostly higher on Monday, also influencing debt
markets.
The U.S. Treasury found soft demand at an auction of $56
billion of 3-year notes at midday, according to
Barnes and to BMO rates strategist Ben Jeffery.
Auctions of 10-year notes and 30-year bonds will
follow on Tuesday and Wednesday.
Wednesday is also the scheduled release date for consumer
price index data, which will be closely watched as a gauge of
inflation.
Chicago Federal Reserve Bank President Charles Evans on
Monday repeated his view that the current surge in inflation is
largely "temporary" and will fade as supply-side pressures get
resolved, but he also sounded less convinced by that theory than
before.
Despite the positive news on jobs and infrastructure, BMO
Capital Markets' head of U.S. rates strategy Ian Lyngen said in
an interview it was still noteworthy the yield on the 10-year
note was below 1.5%, after reaching as high as 1.705% in
October.
After the three-year auction, the yield on the 10-year
touched as high as 1.5037%, then fell back. The pattern
reflected the Fed's shift to hawkish stance and consequent
moderating of growth and inflation expectations, Lyngen said.
"All the bond-bearish scenarios the market had contemplated
have come to fruition," he said.
A wrinkle, he said, is breakeven rates remain high,
indicating concerns about global growth. The 10-year TIPS
yield was at -1.11% and the breakeven inflation
rate was at 2.552%, below its peak in October of nearly 2.7%,
the highest since 2006.
St. Louis Federal Reserve Bank President James Bullard on
Monday said he expects the Fed to raise interest rates twice in
2022 after it wraps up its bond-buying taper mid-year, though he
said if needed the Fed could end the taper in the first
quarter.
A closely watched part of the U.S. Treasury yield curve
measuring the gap between yields on two- and 10-year Treasury
notes, seen as an indicator of economic
expectations, was at 105 basis points, little changed from its
close on Friday.
The two-year U.S. Treasury yield, which typically
moves in step with interest rate expectations, was up 4.2 basis
points at 0.4406%.
November 8 Monday 1:43PM New York / 1843 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 0.04 0.0406 -0.005
Six-month bills 0.06 0.0609 -0.007
Two-year note 99-223/256 0.4406 0.042
Three-year note 99-190/256 0.714 0.062
Five-year note 100-20/256 1.1088 0.055
Seven-year note 100-14/256 1.3667 0.052
10-year note 97-216/256 1.488 0.035
20-year bond 97-128/256 1.9023 0.010
30-year bond 102-164/256 1.8836 -0.002
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 20.25 1.00
spread
U.S. 3-year dollar swap 20.00 -0.25
spread
U.S. 5-year dollar swap 9.00 0.25
spread
U.S. 10-year dollar swap 2.50 0.75
spread
U.S. 30-year dollar swap -21.00 1.50
spread (Reporting by Ross Kerber in Boston; Editing by Toby Chopra and
Cynthia Osterman)
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TREASURIES-Yields higher after infrastructure deal, soft demand for 3-year notes - Reuters
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