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TREASURIES-Yields jump as Powell stays the course

Chuck Mikolajczak
·4 min read

(Adds Powell comments, updates prices, breakeven rate) By Chuck Mikolajczak NEW YORK, March 4 - U.S. Treasury yields jumped on Thursday, with the 10-year yield topping 1.5%, as Federal Reserve Chair Jerome Powell reiterated the central bank's view on maintaining its current ultra-accomodative policy even as inflation concerns simmer. Powell told a Wall Street Journal forum that government stimulus and vaccine rollouts give "good reason to think we will make more progress soon" on the Fed's goal of maximum employment and sustained inflation of 2%. While Powell was echoing recent remarks from several central bank officials, markets were disappointed he did not make stronger comments about the recent jump in yields after the 10-year spiked to a one-year high of 1.614% last week. "The markets wanted to hear something different, the market is kind of setting up its own narrative," said Kim Rupert, managing director of global fixed income analysis at Action Economics in San Francisco. "He didn’t push back as strongly against the move that the markets were expecting." On Tuesday, Fed Governor Lael Brainard, noting last week's rise in yields, acknowledged concern over the possibility a rapid rise in yields could dampen economic activity, while most other central bank officials have downplayed the increase. "It is pretty clear the Fed will tolerate a fair amount of inflation in the numbers, at least in the near-term. Their belief is that it will moderate in the intermediate-to-long-term and there is still significant work to do to reach their employment goals," said Brian Rehling, head of global fixed income strategy at Wells Fargo Investment Institute in St. Louis. "The Fed is aware that any change in their tone could kind of upset the apple cart here, and I would expect them to continue with the same mantra as long as they view this inflation as transitory." The yield on 10-year Treasury notes was up 7.7 basis points to 1.547 percent. Breakeven inflation rates were last at 2.218%, or what investors are now pricing in average annual inflation for the next 10 years, after closing at 2.222% on Wednesday. The cost of borrowing U.S. Treasuries in the overnight repurchase agreement, or repo market, fell to between a -3% to -4% on Thursday, analysts said, caused by the recent bond market sell-off and suggesting stress in money markets. Prior to Powell's comments, yields on longer-dated briefly moved higher after weekly jobless claims data indicated the labor market outlook was improving, in contrast to Wednesday's report on private employer hiring. Other data from the Labor Department also showed worker productivity in the fourth quarter fell at its sharpest pace in almost 40 years while unit labor costs rebounded. The yield on 30-year Treasury bond was up 5.1 basis points to 2.302 percent. Later in the session, a Commerce Department report showed new orders for U.S. goods rose more than anticipated in January, but the pace of business spending on equipment had slowed. The post-Powell trading also pushed up 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 last at 140 basis points, 6.3 higher than at Wednesday's close. March 4 Thursday 3:39PM New York / 2039 GMT Price US T BONDS JUN1 157-4/32 -1-13/32 10YR TNotes JUN1 132-112/256 -0-156/2 56 Price Current Net Yield % Change (bps) Three-month bills 0.0375 0.038 -0.003 Six-month bills 0.0625 0.0634 0.002 Two-year note 99-247/256 0.1428 0.002 Three-year note 99-122/256 0.3033 0.016 Five-year note 98-170/256 0.7736 0.047 Seven-year note 99-106/256 1.2127 0.072 10-year note 96-32/256 1.5467 0.077 30-year bond 90-204/256 2.302 0.051 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 11.25 0.00 spread U.S. 5-year dollar swap 10.50 -0.25 spread U.S. 10-year dollar swap 6.25 0.00 spread U.S. 30-year dollar swap -26.50 0.25 spread (Reporting by Chuck Mikolajczak; editing by Barbara Lewis and Sonya Hepinstall)