U.S. yields advance as strong data backs more Fed rate hikes

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NEW YORK — U.S. Treasury yields rose on

Monday, as last week’s stronger-than-forecast non-farm payrolls

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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.

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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

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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

ps

at

3.610

%.

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

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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

durable goods.

December 5 Monday 10:11AM New York / 1511 GMT

Price Current Net

Yield % Change

(bps)

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

Change

(bps)

U.S. 2-year dollar swap 31.25 0.75

spread

U.S. 3-year dollar swap 11.25 0.00

spread

U.S. 5-year dollar swap 2.50 0.25

spread

U.S. 10-year dollar swap -3.75 0.75

spread

U.S. 30-year dollar swap -39.75 0.75

spread

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Kirsten

Donovan)