Tuesday, October 19, 2021

"TREASURIES-U.S. yield curve steepens as investors pare aggressive rate hike bets"

From Reuters via Yahoo Finance:

* U.S. 10-year yield hits highest since early June 

* U.S. 20-year, 30-year yields touch one-week highs 

* U.S. 5/30 yield curve steepens to 92.8 basis points (Adds new comment, Fed's Waller's remarks, updates prices) 

By Gertrude Chavez-Dreyfuss 

NEW YORK, Oct 19 (Reuters) - The U.S. Treasury yield curve widened on Tuesday, as investors unwound flattening moves of the last few sessions after global central banks dampened expectations of near-term tightening that spilled over to the world's largest bond market. 

The steepening of the curve extended further after weaker than-expected U.S. housing data. The benchmark 10-year U.S. Treasury yield, meanwhile, rose to its highest in more than four months. 

U.S. fed fund futures, which track short-term Federal Reserve rate expectations, on Tuesday priced a 64% chance of a rate hike in July next year, down from 82% on Monday. Traders also priced a 46% chance of a U.S. rate rise by June next year, down from a more than 60% chance on Monday. 

The yield curve had flattened recently on expectations the Fed will tighten interest rates earlier than anticipated, pushing yields on the short end higher. The yield spread between the U.S. 5-year note and U.S. 30-year bond widened to 92.8 basis points on Tuesday. On Monday, the U.S. 5-year/30-year yield curve was at its flattest since late April 2020. 

"The steepening of the curve today is a moderation of Fed hike expectations," said Ben Jeffery, rates strategist, at BMO Capital in New York. "The Fed had said it will hike rates after it ends tapering but that runs counter to a June tightening that the market was pricing in. So we're probably finding a footing at a new range at this point, looking at 5s/30s between 85 and 100 basis points," he added. 

The U.S. 5-year yield, which reflects Fed tightening, has been on a tear the last two weeks, hitting its highest since February 2020 at 1.193%. The yield was last down at 1.1586%. Analysts said global central banks' dovish comments on Tuesday prompted some of the session's earlier steepening moves....