TREASURE – US yields fall as inflation fears stalk markets

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Band Herbert Lash

NEW YORK, May 12 (Reuters)U.S. Treasury yields fell on Thursday as the bond market weighs the chances that the Federal Reserve can keep the economy from sliding into recession as it curbs a rising, albeit subdued, pace of inflation.

The return on 10-year treasury bills US10YT=RR was down 7.1 basis points at 2.843% after the benchmark US government bond fell to an early morning low of 2.816%.

Attempts to have an optimistic view of inflation were shaken as stocks tumbled in Europe and on Wall Street. Fears of a global slowdown spooked markets and pushed copper prices below $9,000 a tonne for the first time since October.

The US Department of Labor said the producer price index for final demand rose 0.5% in April as the rise in the cost of energy products moderated. The PPI jumped 1.6% in March.

Demand for the Treasury’s sale of $22 billion in 30-year bonds was high, pushing prices higher and the yield to 2.997%, below where it traded at 3.006% before the month. auction, said Tom Simmons, money market economist at Jefferies LLC.

“There is clearly a huge demand for duration in the market,” Simmons said. “At least someone is probably buying duration in the hope that maybe the Fed will get the tightening right at some point.”

The market yield on the 30-year bond US30YT=RR fell 2.6 basis points to 3.016%.

The real return, as seen by 10-year Treasury inflation-protected securities (TIPS) US10YTIP=RRrecently turned positive, suggesting an improving economic outlook, said Dec Mullarkey, managing director of investment strategy and asset allocation at SLC Management.

“Yesterday these fell about 15 basis points and are still falling,” Mullarkey added. “What the market was pricing in was maybe a bit more profitability of a stagflation scenario, maybe a bit more likelihood of some type of recession.”

The 10-year TIPS yield rose 4 basis points to 0.241%. The yield has remained positive since early May for the first time since markets crashed in March 2020 when the coronavirus pandemic swept the world.

Some market indicators suggested a drop in the inflation rate.

The 10-year TIPS break-even rate US10YTIP=RR was last at 2.616%, indicating that the market expects inflation to average around 2.6% per year for the next decade, down from more than 2.9% at the end of April.

In the 12 months to April, the PPI rose 11.0% after accelerating 11.5% in March. Economists expect the PPI to gain 0.5% for the month and rise 10.7% year-over-year.

Slower gains in monthly producer prices follow a similar trend in consumer prices last month. The government announced on Wednesday that consumer prices posted their weakest rise in eight months in April. Annual consumer price inflation also slowed for the first time since last August.

A closely watched part of the US Treasury yield curve measuring the spread between two- and 10-year bond yields US2US10=RR, an indicator of recession risk, narrowed to 29.6 basis points. When the curve inverts, pushing short-term yields higher than long-term ones, a recession may occur in the future.

The two years US2YT=RR The yield on US Treasuries, which generally moves in line with interest rate expectations, fell 8.4 basis points to 2.545%.

The five-year U.S. Treasury Inflation-Protected Securities (TIPS) break-even rate US5YTIP=RR was last at 2.908%.

The US dollar 5-year inflation-linked swap USIL5YF5Y=Rconsidered by some to be a better indicator of inflation expectations due to possible distortions caused by the Fed’s quantitative easing, last stood at 2.555%.

May 12 Thursday 3:28 p.m. New York / 1928 GMT

Price

Current yield %

Net change (bps)

Three-month bills US3MT=RR

0.925

0.94

0.036

Half-yearly invoices US6MT=RR

1.3825

1.4115

-0.008

Two-year ticket US2YT=RR

99-233/256

2.5469

-0.082

Three-year ticket US3YT=RR

100-8/256

2.739

-0.074

Five-year ticket US5YT=RR

99-188/256

2.8076

-0.069

Seven-year note US7YT=RR

100-16/256

2.8649

-0.070

10 year ticket US10YT=RR

100-68/256

2.8443

-0.069

20 year bond US20YT=RR

87-132/256

3.2349

-0.027

30 year bond US30YT=RR

84-252/256

3.0181

-0.024

DOLLAR EXCHANGE GAP

Last (bps)

Net change (bps)

2-year US dollar swap spread

27.50

0.25

3-year US dollar swap spread

12.50

-1.25

5-year US dollar swap spread

5.50

0.25

10-year US dollar swap spread

8.25

2.50

30-year US dollar swap spread

-24.75

2.25

(Reporting by Herbert Lash; Editing by Nick Zieminski and Will Dunham)

(([email protected]; 1-646-223-6019))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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