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TREASURIES-U.S. yields drift higher ahead of retail sales, jobless claims data

Karen Pierog
·4 min read

* U.S. yield curve steeper as rates rise * Fed's Powell says will pare bond buys first before raising rates * U.S. overnight rate fell as low as -0.05% * Fed's reverse repo window soaks up more than $50 bln in cash (Adds overnight repo rate, Fed's reverse repo operations) By Karen Pierog CHICAGO, April 14 (Reuters) - U.S. Treasury yields edged higher and the yield curve steepened on Wednesday as the market awaited Thursday's release of weekly jobless claims and March retail sales data for further clues on the economy's recovery from the coronavirus pandemic. The benchmark 10-year yield was last up at 1.6341%, holding below a 14-month high of 1.776% reached on March 30. The rise in yields followed Tuesday's tumble in the wake of a strong 30-year bond auction. Michael Lorizio, senior fixed income trader at Manulife Investment Management in Boston, said, "It makes sense to see some giveback after this strength that we've seen basically across the entire curve" in the face of better-than-expected economic data and $120 billion in bond and note supply that hit the market in auctions this week. On Thursday, the market will weigh the latest weekly initial jobless claims, which are expected to fall to 700,000 for the week ended April 10 from 744,000 in the prior week. Also on tap is a U.S. Commerce Department report on retail sales, which is expected to show a 5.9% jump in March after falling 3% in February, according to a Reuters poll. "If retail sales beats the upside, it would make intuitive sense it should be a bearish influence on U.S. Treasuries for sure, but I think there's expectations for this accelerating economy that much of the market is already positioned for to some degree," Lorizio said. Meanwhile, yields were largely unmoved by comments from Federal Reserve Chair Jerome Powell and other central bank officials on Wednesday. In remarks to the Economic Club of Washington, Powell clarified the order of monetary policy changes still months, if not years, away, saying the Fed will reduce its monthly bond purchases before it commits to an interest rate increase. Dallas Federal Reserve Bank President Robert Kaplan said the central bank should reduce its "extraordinary measures ... at the first opportunity once we've reached, and are reaching, some of these benchmarks." Those include the weathering of the pandemic and progress toward full employment and 2% inflation. As for inflation, New York Fed President John Williams said it could be volatile in the near term and that the central bank, which has a target of 2%, knows how to act if it gets too high. The Fed also released its Beige Book, a collection of anecdotes about the economy from the central bank's 12 regional districts, which indicated the economic recovery accelerated to a moderate pace from late February to early April. The two-year Treasury yield was last less than a basis point higher at 0.163%. A closely watched part of the yield curve that measures the gap between yields on two- and 10-year Treasury notes was last 1.40 basis points steeper at 147.11 basis points. In the overnight repo market, the rate fell as low as -0.05%, according to traders, ending the trading day at 0% . The low rates pushed investors to lend cash to the Fed via its reverse repo window, with $50.8 billion in cash on Wednesday. In total the Fed's reverse repo operations have mopped up about $118 billion in excess cash so far this week. April 14 Wednesday 4:28PM New York / 2028 GMT Price Current Net Yield % Change (bps) Three-month bills 0.02 0.0203 0.000 Six-month bills 0.04 0.0406 0.000 Two-year note 99-237/256 0.163 0.002 Three-year note 100-14/256 0.3567 0.006 Five-year note 99-122/256 0.858 0.018 Seven-year note 99-160/256 1.3065 0.018 10-year note 95-96/256 1.6359 0.013 20-year bond 94-152/256 2.2131 0.018 30-year bond 90-152/256 2.3132 0.005 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 11.50 0.00 spread U.S. 3-year dollar swap 12.00 0.25 spread U.S. 5-year dollar swap 8.50 -1.00 spread U.S. 10-year dollar swap -1.00 -1.75 spread U.S. 30-year dollar swap -26.75 -2.75 spread (Reporting by Karen Pierog in Chicago; Additional reporting by Gertrude Chavez-Dreyfuss; Editing by Jan Harvey, Matthew Lewis and Jonathan Oatis)