(Adding record reverse repo, 10-year TIPS auction, comment) By Herbert Lash NEW YORK, September 23 – U.S. Treasury yields surged Thursday after the Federal Reserve opened the door to an interest rate hike starting next year, a potential move that has been bolstered by the Bank of England’s rate outlook and a rate hike by the Norwegian central bank. Yields on the benchmark 10-year Treasury bond surpassed 1.4% to reach their highest level since mid-July, as selling pressure on UK gilts spilled over into the Treasury market after the message of tightening from European central banks. The sudden upward movement in yields surprised the market after the moderate reaction to the Fed’s hawkish stance on Wednesday. The US central bank has said it will reduce its monthly bond purchases “soon” and that half of Fed policymakers are expected to increase borrowing costs in 2022. “Bonds continued to dip in the aftermath. noon, tripping sales stops along the way, “Kim Rupert, managing director, fixed income at Action Economics in San Francisco. The hawkish turn among Fed policymakers, similar signs in other central banks and the recovery in equity risk weighed heavily on US Treasuries, she said. The Treasury’s announcement of shorter-term coupon auctions of $ 183 billion next week, the size of which has not changed so far this year, also weighed, Rupert said. “Take a step back and think about how low the returns are compared to where we were in the first quarter of this year,” said Zachary Griffiths, macro strategist at Wells Fargo in Charlotte, North Carolina. “We have very high inflation, high economic growth forecasts and it’s been really hard to justify where the returns have been so far.” The BofE said the case for a rate hike “appeared to have strengthened,” prompting interest rate futures to factor in a 90% chance that the UK central bank would raise its rate by February. Short-term UK government bond yields hit their highest level since the market turmoil of March 2020. Norges Bank raised its benchmark interest rate to 0.25% from zero and s’ expects a further rise in December, arguing that a strong recovery in the Norwegian economy has given time to begin a gradual normalization of monetary policies. It became the first major central bank to tighten its policy since the start of the COVID-19 crisis. Policymakers at the European Central Bank, meanwhile, are bracing for inflation to exceed the bank’s already high estimates, paving the way for its emergency bond purchases to end in March, said officials. sources involved in the discussion. “The accounts look at this movement of British gilts, which is the source of a large part of sales in Europe,” said Tom di Galoma, managing director of Seaport Global Holdings. “The accounts sense that the rates are going to go up in the fall, and they are trying to move forward.” The yield on benchmark 10-year US Treasuries rose 6.5 basis points to 1.396%, while the 30-year T-bill surpassed 1.93%, before retreating slightly. The Fed’s reverse repo facility, which gives authorized fund managers the ability to lend money overnight to the U.S. central bank in exchange for Treasury guarantees, set a new record of $ 1.352 trillion. dollars, or 128 billion more than Monday. Lending rates remained at 5 basis points. The five-year note broke 90 basis points for the first time since early July after the Fed said on Wednesday it would cut its monthly bond purchases “soon” and half of central bank policymakers predict that borrowing costs will have to rise in 2022, a more hawkish slant than in the past. The target on five-year bonds is now around 1% and there will likely be more revaluation as the market assesses the hawkish stance of Fed Chairman Jerome Powell, di Galoma said. “Central banks are finally starting to understand that they really need to tighten up. The pandemic is practically over,” he said. A closely watched portion of the U.S. Treasury yield curve measuring the spread between two-year and ten-year Treasury bill yields, seen as an indicator of economic expectations, was 114.1 basis points. The two-year US Treasury yield, which generally moves in line with interest rate expectations, rose 1.3 basis points to 0.253%. The breakeven rate on inflation-protected five-year US Treasury securities (TIPS) was the latest at 2.494%. The 10-year TIPS break-even rate was the latest at 2.338%, indicating that the market is forecasting average inflation of around 2.33% per year for the next decade. The 10-year TIPS $ 14 billion Treasury auction was strong, posting a strong return of -0.939% against a six-auction average of -0.870%, according to BMO Capital Markets. September 23 Thursday 1:24 p.m. New York / 5:24 p.m. GMT Price Current net return% change (bp) Three-month bills 0.03 0.0304 0.000 Six-month bills 0.045 0.0456 0.000 Two-year note 99-193 / 256 0.2527 0.013 Three-year note 99 -150/256 0.5154 0.021 5-year bond 99 -50 / 256 0.9172 0.050 7-year bond 99-120 / 256 1.2051 0.060 10-year bond 98 -168/256 1.3959 0.065 20-year bond 98 -40 / 256 1.8613 0.065 30-year bond 101 -252 / 256 1.9125 0.064 SPREADS DOLLAR SWAP Last (bps) Net change (bps) 2-year US dollar swap 11.75 0.50 3-year US dollar swap spread 12.75 0.50 5-year US dollar swap spread 10.00 -0.25 10-year US dollar swap spread 2.50 0.25 US dollar swap spread at 30 years -24.75 spread 0.50 Nick Zieminski)


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