TREASURIES-Strong 30-year bond auction pushes yields lower

Karen Pierog
·4 min read

(Recasts, updates yields, adds analyst comments) By Karen Pierog CHICAGO, April 13 (Reuters) - U.S. Treasury yields fell and the yield curve flattened on Tuesday in the wake of solid demand for a 30-year bond auction, although next week's offering of 20-year bonds could be rocky. The benchmark 10-year yield was last down 5.8 basis points at 1.618% and the 30-year yield was 5 basis points lower at 2.2977%. The $24 billion of 30-year bonds were sold at a high yield of 2.320% and with a bid-to-cover ratio, a gauge of demand, of an above-average 2.47 times. Analysts at Jefferies called the results "fabulous," as well as "quite surprising given the lack of concession that led up to the bidding deadline." The offering followed Monday's relatively smooth auctions of three- and 10-year notes totaling $96 billion. "The market breathed a bit of a sigh of relief after the 30-year (auction), but now the question becomes the 20-year (auction) next week," said Gennadiy Goldberg, senior U.S. rates strategist at TD Securities. He pointed out there were no changes in the plan the New York Federal Reserve Bank released on Tuesday to purchase about $80 billion of Treasuries between April 14 and May 13. "The (20-year) auction could struggle a little bit given that the expectation was that the Fed will be buying probably $3 billion more in that seven- to 20-year space," Goldberg said. The market has been focusing on auctions after a poor showing for a seven-year note offering in February sparked a run up in yields. Earlier on Tuesday, a move higher in yields that lifted the 10-year to 1.703% abated after U.S. federal health agencies recommended pausing the use of Johnson & Johnson's COVID-19 vaccine due to concerns related to blood clots. Yields also eased after consumer prices data showed that while underlying inflation picked up in March, it was not wildly rising as feared. With the economy getting a boost from the coronavirus vaccine rollout and massive fiscal stimulus, the consumer price index jumped 0.6% last month, the largest gain since August 2012, after rising 0.4% in February, the U.S. Labor Department said on Tuesday. Core CPI, excluding food and energy prices, rose 0.3%, after edging up 0.1% in February and was up 1.6% on a year-on-year basis. Zachary Griffiths, macro strategist at Wells Fargo in Charlotte, North Carolina, said that while yields have climbed on expectations of much higher inflation, the data showed that "inflation isn't running away anytime soon and it's not going to cause the (U.S Federal Reserve) to reassess its approach to monetary policy in the near future." The 10-year Treasury Inflation-Protected Securities breakeven inflation rate rose to as high as 2.352% after the CPI data. It was last at 2.327%. The two-year Treasury yield, which typically moves in step with interest rate expectations, was last a basis point lower at 0.1609%. A closely watched part of the yield curve that measures the gap between yields on two- and 10-year Treasury notes was flatter following the auction. It was last 4.16 basis points lower at 145.71 basis points. Looking ahead to Wednesday, the Fed will release its Beige Book, a compendium of data and anecdotes gathered by each of the 12 regional Fed banks on current economic conditions, based on surveys of and interviews with key business contacts. Kelly Ye, director of research at IndexIQ, a unit of New York Life Investments, said the report will provide "more color" and "will be also a very important input in terms of people's assessment for the Treasury market." April 13 Tuesday 4:34PM New York / 2034 GMT Price Current Net Yield % Change (bps) Three-month bills 0.02 0.0203 -0.003 Six-month bills 0.0425 0.0431 0.002 Two-year note 99-238/256 0.1609 -0.010 Three-year note 100-18/256 0.3514 -0.031 Five-year note 99-146/256 0.8386 -0.053 Seven-year note 99-196/256 1.2853 -0.059 10-year note 95-136/256 1.618 -0.058 20-year bond 94-220/256 2.196 -0.045 30-year bond 90-232/256 2.2977 -0.050 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 11.50 -0.25 spread U.S. 3-year dollar swap 11.50 -3.00 spread U.S. 5-year dollar swap 9.25 -1.25 spread U.S. 10-year dollar swap 0.25 -1.50 spread U.S. 30-year dollar swap -25.00 -2.25 spread (Reporting by Karen Pierog, additional reporting by Gertrude Chavez-Dreyfuss in New York; Editing by Steve Orlofsky and Jonathan Oatis)