(Updates yields, adds analyst and Fed officials' comments,
10-year TIP breakeven rate, and upcoming auctions)
By Karen Pierog
CHICAGO, Jan 7 (Reuters) - U.S. Treasury yields on the
longer end of the curve continued their march higher on Thursday
as the market factored in a Democrat-controlled U.S. government
and the potential for further stimulus spending.
The benchmark 10-year yield, which shot over the
1% level on Wednesday for the first time since March, was last
up 3.2 basis points at 1.0744%, while the yield curve steepened.
A big move higher in yields on Wednesday, sparked by
Georgia runoff elections that gave Democrats control of the U.S.
Senate, was later tempered when supporters of Republican
President Donald Trump stormed the U.S. Capitol.
After the building was cleared, lawmakers certified Democrat
Joe Biden's presidential victory early on Thursday.
The prospect that Democrats will push for significant
stimulus to aid the coronavirus-battered economy added fuel to
an ongoing "normalization in the rate market to the extent
possible given that the front end is anchored by (U.S. Federal
Reserve) policy," according to Bill Merz, head of fixed income
research at U.S. Bank Wealth Management in Minneapolis.
With Democrats already controlling the U.S. House of
Representatives, "the Georgia Senate elections just added a
tailwind to existing trends of reflation and upward pressure on
Treasury yields," he said.
Andrew Brenner, head of international fixed income at
NatAlliance, said that instead of raising taxes to fund federal
spending for stimulus or infrastructure, the money will
initially come from issuing debt as the Fed considers cutting
back on its bond purchases.
"You're going to see more supply without any additional Fed
support. So I tend to think that's going to push rates higher,"
he said.
The latest Fed officials to weigh in on bond purchases
included Chicago Federal Reserve President Charles Evans, who
said on Thursday that if inflation does not look on track to
return to 2% later this year, central bank may need to do more
with its asset purchase program to convince markets it is
serious.
The 10-year Treasury Inflation Protected Securities
breakeven inflation rate, which this week topped 2% for the
first time since November 2018, hovered around 2.1% on Thursday.
Philadelphia Federal Reserve Bank President Patrick Harker
earlier on Thursday said the central bank is unlikely to taper
them until the end of this year at the earliest.
Atlanta Fed President Raphael Bostic said on Monday that the
Fed could begin to trim its monthly asset purchases this year if
distribution of coronavirus vaccines boosts the economy.
Yields also got a lift after data on Thursday showed U.S.
services industry activity accelerated last month with the
Institute for Supply Management's non-manufacturing activity
index climbing to a 57.2 reading from 55.9 in November.
Ahead of Friday's December employment report, the U.S. Labor
Department reported first-time claims for jobless benefits
unexpectedly dipped to a seasonally adjusted 787,000 for the
week ended Jan. 2, from 790,000 in the prior week.
According to a Reuters survey of economists, nonfarm
payrolls likely increased by 71,000 jobs last month after rising
by 245,000 in November, while the unemployment rate was expected
to rise to 6.8% from 6.7% in the previous month.
Meanwhile, the U.S. Treasury announced auctions next week
for a record $58 billion of three-year notes, as well as for $38
billion of 10-year notes, and $24 billion of 30-year bonds.
The most closely watched part of the yield curve, which
measures the gap between yields on two- and 10-year Treasury
notes, remained at its widest level since 2017. It
was last up 3.52 basis points at 93.36 basis points.
The spread between five-year notes and 30-year bonds, which
is currently at levels last seen in 2016, widened to as much as
141.28 basis points.
The two-year U.S. Treasury yield, which typically
moves in step with interest rate expectations, was last down
less than a basis point at 0.1408%.
January 7 Thursday 3:56PM New York / 2156 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 0.085 0.0862 -0.003
Six-month bills 0.09 0.0913 0.000
Two-year note 99-248/256 0.1408 -0.004
Three-year note 99-190/256 0.2132 0.005
Five-year note 99-152/256 0.4576 0.026
Seven-year note 99 0.7725 0.032
10-year note 98-36/256 1.0744 0.032
20-year bond 95-140/256 1.6387 0.032
30-year bond 94-224/256 1.8491 0.028
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 7.00 0.50
spread
U.S. 3-year dollar swap 6.50 0.50
spread
U.S. 5-year dollar swap 6.50 1.00
spread
U.S. 10-year dollar swap -0.75 1.00
spread
U.S. 30-year dollar swap -28.00 0.50
spread (Reporting by Karen Pierog; Editing by Dan Grebler and
Marguerita Choy)
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