TREASURIES-Real yields tumble as traders eye inflation risk

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 (Updates prices)
    By Ross Kerber
    Nov 9 (Businesshala) - U.S. Treasury real yields were down
sharply on Tuesday as traders hedging against the possibility of
rising inflation scooped up inflation-linked securities, while
they also bought conventional debt as a low-risk investment. 
    The benchmark 10-year yield was down 6.6 basis
points at 1.4306% in midday trading. The yield on 10-year
Treasury Inflation Protected Securities was at
-1.195%, the lowest since early August, and the yield on 30-year
TIPS touched a record low of -0.586%.
    The growing demand for TIPs indicated more concerns about
inflation taking hold among investors. 
    The U.S. Federal Reserve this month will begin to remove the
first pillar of extraordinary stimulus it introduced in March
2020 to shield the economy from the COVID-19 pandemic, when it
starts to taper its massive bond purchases. There
is growing debate over how much longer high inflation can be
tolerated.
    Some of the decline in yields came after the U.S. Labor
Department said producer prices increased solidly in October.
Traditionally that might push up yields, said Stan Shipley,
managing director for Evercore ISI, but the continued buying
showed investors still interested in safe U.S. securities. 
    "People are sitting here unwilling to take risks," he said.
    The Treasury Department was scheduled to auction $39 billion
of 10-year notes at midday on Tuesday, followed by an auction of
$25 billion worth of 30-year bonds on Wednesday.
    Wednesday is also the scheduled release date for consumer
price index data, which will be closely watched as a gauge of
inflation.
    Priya Misra, global head of rates strategy for TD
Securities, said another factor influencing Tuesday's trading
included a sense that non-U.S. central banks are feeling less
hawkish pressure, leading to buying overseas. 
    Germany's 10-year inflation-linked bond, which reflects the
so-called real yields, fell to a record low of -2.09%.

    Misra also noted a recent report that U.S. President Joe
Biden met with Fed Governor Lael Brainard as a potential next
Fed Chair. She would be considered a dovish pick.
    The bond buying pushed down 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. It was about three basis
points lower at 102 basis points, its lowest since Oct. 28.
     The two-year U.S. Treasury yield, which
typically moves in step with interest rate expectations, was
down 3.2 basis points at 0.4168%.
    
        November 9 Tuesday 11:42AM New York / 1642 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.045        0.0456    0.000
 Six-month bills               0.06         0.0609    -0.005
 Two-year note                 99-235/256   0.4168    -0.032
 Three-year note               100-22/256   0.721     -0.038
 Five-year note                100-58/256   1.0781    -0.042
 Seven-year note               100-94/256   1.3197    -0.057
 10-year note                  98-92/256    1.4306    -0.066
 20-year bond                  98-128/256   1.8408    -0.067
 30-year bond                  104-120/256  1.8052    -0.083
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        20.50         1.25    
 spread                                               
 U.S. 3-year dollar swap        17.00        -2.50    
 spread                                               
 U.S. 5-year dollar swap         8.50        -0.25    
 spread                                               
 U.S. 10-year dollar swap        2.50         0.00    
 spread                                               
 U.S. 30-year dollar swap      -20.75         0.25    
 spread (Reporting by Ross Kerber in Boston; 
Editing by Mark Heinrich and Andrea Ricci)
  
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