Yields fall on plummeting consumer sentiment
By Karen Pierog CHICAGO, Aug 13 (Reuters) - U.S. Treasury yields tumbled on Friday after a gauge of consumer sentiment fell to its lowest level since December 2011 as Americans' outlooks for personal finances, inflation, and employment dimmed. The benchmark 10-year yield, which hit a session low of 1.3%, was last down 5.7 basis points at 1.3102%. The University of Michigan said its preliminary consumer sentiment index fell to 70.2 in the first half of this month from a final reading of 81.2 in July. That was the lowest level since 2011 and one of the six largest drops in the past 50 years of the survey. Economists polled by Reuters had forecast the index would remain unchanged at 81.2. The big drop helped drive Treasury yields lower, according to Ben Jeffery, U.S. rates strategist at BMO Capital Markets. "That combined with thin liquidity and Delta (coronavirus) variant is probably what is driving the move this morning." Meanwhile, the market was awaiting more signals from the U.S. Federal Reserve and from data before succumbing to higher rates, said George Goncalves, head of U.S. macro strategy at MUFG in New York. "This past week it did feel like there was some potential to finally break this unrelenting lower-rate mentality that was going on, but the 10-year auction being how strong it was, even the 30-year (auction) was pretty decent, it kind of stopped it (potential for yields to move higher) in its tracks." Goncalves added that Wednesday's release of minutes from the Fed's July meeting and the central bank's Jackson Hole event later this month could fuel an uptick in yields. "And if (the August employment report) is strong in the first week of September, that's what I'm looking for to make this conclusive 'hey this was a bottom in rates and we're turning higher,'" Goncalves said. Inflation data this week did little to shake up the market. It showed that U.S. consumer price increases slowed in July even as they remained at a 13-year high on a yearly basis, while producer prices increased more than expected in July, suggesting that inflation could remain elevated as strong demand continues to hurt supply chains. Inflation expectations eased a little on Friday after the breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) climbed as high as 2.616% on Thursday. It was last at 2.581%. After selling $126 billion of notes and bonds this week, the U.S. Treasury will hold auctions for $27 billion of 20-year bonds on Wednesday and $8 billion of 30-year TIPS on Thursday. A closely watched part of the yield curve that measures the gap between yields on two- and 10-year Treasury notes was last about 4 basis points flatter at 109.38 basis points. August 13 Friday 10:42AM New York / 1442 GMT Price Current Net Yield % Change (bps) Three-month bills 0.055 0.0558 0.005 Six-month bills 0.05 0.0507 0.000 Two-year note 99-211/256 0.2151 -0.012 Three-year note 99-208/256 0.438 -0.021 Five-year note 99-44/256 0.7957 -0.035 Seven-year note 99-108/256 1.0865 -0.049 10-year note 99-112/256 1.3102 -0.057 20-year bond 106-120/256 1.8571 -0.062 30-year bond 100-232/256 1.9599 -0.066 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 9.00 0.25 spread U.S. 3-year dollar swap 9.75 -0.25 spread U.S. 5-year dollar swap 8.25 -0.25 spread U.S. 10-year dollar swap 0.50 0.50 spread U.S. 30-year dollar swap -29.75 -0.50 spread (By Karen Pierog Editing by Mark Heinrich)
