Yields ease as expected Fed tapering move looms
By Karen Pierog CHICAGO, Nov 2 (Reuters) - U.S. Treasury yields drifted lower on Tuesday as the market awaited the likely announcement by the Federal Reserve that it will commence tapering its asset purchases, while hoping for clues on whether rising inflation would trigger sooner interest rate hikes. The benchmark 10-year yield was last down 1.7 basis points at 1.5558%. At the conclusion of its two-day meeting on Wednesday, the U.S. central bank is widely expected to reveal plans to reduce its monthly $120 billion purchases of Treasuries and mortgage-backed securities. But, Fed Chair Jerome Powell "will kind of play it cool" when it comes to raising rates, according to Kim Rupert, managing director of global fixed income analysis at Action Economics in San Francisco. "Powell is going to again say that the inflation pop is still transitory and I don't think he'll give any kind of hint with respect to the timing of liftoff," she said, adding that the Treasury market had gotten "overly aggressive" in pricing in a couple of Fed rate hikes in 2022. The longest end of the curve inverted for a fourth-straight session with the 20-year yield last at 1.9849% and the 30-year yield at 1.9672%. "There's a lot of illiquidity problems in the 20-year," Rupert said. The two-year yield, which hit a 19-month peak last week, was last down 3.7 basis points at 0.4776%. The five-year yield, another part of the curve that is sensitive to Fed rate expectations, was last 3.7 basis points lower at 1.1589%. After flattening last week, yield curves have steepened so far this week. A closely watched part of the yield curve that measures the gap between yields on two- and 10-year Treasury notes was last about 2 basis points steeper at 107.60 basis points. The spread between five-year notes and 30-year bonds also steepened, rising about 3 basis points at 80.90 basis points. Inflation expectations remained below last week's spike to the highest levels in more than a decade. The five-year breakeven inflation rate was last at 2.857% and at 2.518% for the 10-year rate. November 2 Tuesday 10:12AM New York / 1412 GMT Price Current Net Yield % Change (bps) Three-month bills 0.05 0.0507 0.000 Six-month bills 0.0725 0.0735 0.002 Two-year note 99-204/256 0.4776 -0.037 Three-year note 99-168/256 0.7431 -0.040 Five-year note 99-214/256 1.1589 -0.037 Seven-year note 99-168/256 1.4268 -0.033 10-year note 97-60/256 1.5558 -0.017 20-year bond 96-44/256 1.9849 -0.017 30-year bond 100-188/256 1.9672 -0.001 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 20.00 0.25 spread U.S. 3-year dollar swap 21.00 0.25 spread U.S. 5-year dollar swap 8.00 1.25 spread U.S. 10-year dollar swap 3.00 2.00 spread U.S. 30-year dollar swap -21.00 0.75 spread (Reporting by Karen Pierog; Editing by Andrea Ricci)
