U.S. yields advance as strong data backs more Fed rate hikes
NEW YORK — U.S. Treasury yields rose on
Monday, as last week’s stronger-than-forecast non-farm payrolls
report as well as a slew of economic data cemented expectations
that the Federal Reserve will continue to raise interest rates
well into 2023 although at a slower pace.
The U.S. two-year/10-year yield curve
deepened its inversion from last Friday. The gap between the two
notes’ yields widened to as much as -81.20 basis points (bps),
the most in two weeks, and was last at -76.70 bps.
The inversion of this curve typically precedes recession.
U.S. yields initially jumped on Friday after nonfarm
payrolls increased by 263,000 jobs last month, which was higher
than expected, with the data for October also revised higher.
“The market is accepting that inflation is cooling and
that’s good news,” said Stan Shipley, fixed income strategist,
at Evercore ISI in New York.
“The problem is they’re also looking at the labor market,
(showing) a solid reading for the month of November, which means
the Fed is going to go more because it wants the labor market to
slow which raises the risk of recession,” he added.
The rate futures market on Monday had priced in a peak fed
funds rate of 4.9%, seen hitting at the July meeting. That was
down from about 5.1% before Fed Chair Jerome Powell said last
week that the U.S. central bank will likely slow the pace of
interest rate hikes as soon as this month.
In mid-morning trading, the yield on 10-year Treasury notes
was up 6.7 bps at 3.570%.
The yield on the 30-year Treasury bond was
up 4.9 b
On the shorter-end of the curve, the two-year
U.S. Treasury yield, which typically moves in step with interest
rate expectations, was up 4.9 bps at 4.329%.
U.S. yields briefly extended gains after a slew of data
showed continued expansion in the world’s largest economy.
U.S. services industry activity unexpectedly picked up in
November, with employment rebounding. The Institute for Supply
Management (ISM) said on Monday its non-manufacturing PMI
increased to 56.5 last month from 54.4 in October, which was the
lowest reading since May 2020.
U.S. factory activity also showed gains, as did orders for
December 5 Monday 10:11AM New York / 1511 GMT
Price Current Net
Yield % Change
Three-month bills 4.2025 4.3041 -0.016
Six-month bills 4.52 4.6869 0.005
Two-year note 100-77/256 4.3397 0.060
Three-year note 101-46/256 4.0696 0.079
Five-year note 100-150/256 3.7449 0.079
Seven-year note 101-40/256 3.6856 0.081
10-year note 104-136/256 3.5791 0.076
20-year bond 102-52/256 3.8407 0.057
30-year bond 107-12/256 3.6128 0.053
DOLLAR SWAP SPREADS
Last (bps) Net
U.S. 2-year dollar swap 31.25 0.75
U.S. 3-year dollar swap 11.25 0.00
U.S. 5-year dollar swap 2.50 0.25
U.S. 10-year dollar swap -3.75 0.75
U.S. 30-year dollar swap -39.75 0.75
(Reporting by Gertrude Chavez-Dreyfuss; Editing by Kirsten
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