TREASURIES-Yields edge up before auctions, CPI data

Karen Brettell
·3 min read

By Karen Brettell NEW YORK, April 12 (Reuters) - U.S. Treasury yields edged higher on Monday before the Treasury Department will sell $96 billion in new three-year and 10-year notes, and ahead of key data releases this week, including consumer price inflation. Yields have dipped from one-year highs reached last month on improving demand for the debt, though they remain elevated with investors concerned that faster economic growth and rising price pressures will continue to push yields higher. Increasing supply as the government finances higher fiscal spending and widening deficits is adding to the yield increases. Demand for the Treasury Department’s sales of $58 billion in three-year notes and $38 billion in 10-year notes on Monday should be solid, with the higher yields likely to attract more buyers, analysts said. “I don’t think that this is a month where we have particularly high risk for the long-duration auctions,” said Tom Simons, a money market economist at Jefferies in New York. Three-year notes gained one basis point on the day to 0.350%. Benchmark 10-year yields also rose one basis point to 1.675%. They are holding below a one-year high of 1.776% reached on March 30. The Treasury will also sell $24 billion in 30-year bonds on Tuesday. U.S. consumer price data for March due on Tuesday is the next major economic focus. Investors are betting that price pressures will increase due to increased fiscal and monetary stimulus and as businesses reopen from COVID-19 related closures. Comparisons with last year are also likely to be strong, due to a drop in inflation a year ago when businesses closed due to COVID-19. “This is the first month we’re going to see the big base effect pump up the year-over-year comparisons,” said Simons. Market participants are aware of the effect, however, and the Federal Reserve has indicated it will look through any temporary inflation, making it unlikely that a strong number will create a hawkish response from the U.S. central bank. “I don’t think there is a real risk that the hiking timeline is pulled forward or anything like that,” Simons said. Data on Friday showed that U.S. producer prices notched their largest annual gain in 9-1/2 years last month. The U.S. economy is at an "inflection point" with expectations that growth and hiring will pick up speed in the months ahead, but also risks if a hasty reopening leads to a continued increase in coronavirus cases, Fed Chair Jerome Powell said on Sunday. Retail sales data for March will also be released on Thursday. April 12 Monday 9:37AM New York / 1337 GMT Price Current Net Yield % Change (bps) Three-month bills 0.015 0.0152 0.002 Six-month bills 0.035 0.0355 -0.002 Two-year note 99-236/256 0.1648 0.008 Three-year note 99-182/256 0.3496 0.014 Five-year note 99-86/256 0.887 0.019 Seven-year note 99-98/256 1.3431 0.013 10-year note 95-8/256 1.6746 0.009 20-year bond 94-80/256 2.2312 0.008 30-year bond 90 2.3426 0.004 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 12.00 -0.25 spread U.S. 3-year dollar swap 15.25 0.25 spread U.S. 5-year dollar swap 11.25 0.00 spread U.S. 10-year dollar swap 2.50 0.00 spread U.S. 30-year dollar swap -22.25 -0.25 spread (Reporting by Karen Brettell; editing by Jonathan Oatis)