US Markets

TREASURIES-U.S. yields rise on inflation worry

Credit: REUTERS/Yuriko Nakao

U.S. Treasury yields climbed on Tuesday, as persistent inflation concerns ahead of a key reading on consumer prices on Wednesday helped drive a sell-off in equity markets.

By Chuck Mikolajczak

NEW YORK, May 11 - U.S. Treasury yields climbed on Tuesday, as persistent inflation concerns ahead of a key reading on consumer prices on Wednesday helped drive a sell-off in equity markets.

Yields on longer-dated Treasuries were up for a third straight day, with the yield on 10-year Treasury note US10YT=RRup 2.7 basis points at 1.629%.

Investors await Wednesday's April consumer price index data to see if the U.S. Federal Reserve will begin to alter its stance on inflation.

The Fed has repeatedly maintained that any inflation would be transitory in nature. On Tuesday, Cleveland Federal Reserve Bank President Loretta Mester said she expected inflation to end the year above 2% but to come down next year as supply constraints ebb.

"(The Fed) have made it very clear that they think it is transitory and ongoing price increases will continue to be transitory but we are not going to know if they are right about that until much further down the road," said Bill Merz, head of fixed income research at U.S. Bank Wealth Management in Minneapolis.

"In the meantime the market is going to make up their own mind and whether investors believe that inflation is transitory is going to make a significant difference in how assets trade and whether the market starts to challenge the Fed to move faster than the Fed would like."

The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) US5YTIP=RR was last at 2.681%, after closing at 2.717% on Monday, its highest close in just over a decade.

The 10-year TIPS breakeven rate US10YTIP=RR was last at 2.515%, indicating the market sees inflation averaging 2.5% a year for the next decade.

The inflation concerns were felt in equity markets, which declined across all major S&P sectors, with richly valued growth names such as Apple Inc AAPL.O and Microsoft Corp MSFT.O among the biggest drags.

The yield on 30-year Treasury bond US30YT=RR was up 4.2 basis points at 2.361%.

Markets will also see a jolt of supply this week, with a $58 billion Treasury auction of three-year notes scheduled for 1 p.m. EDT (1500 GMT), $41 billion of 10-year notes on Wednesday, and $27 billion of 30-year bonds on Thursday.

May 11 Tuesday 10:58AM New York / 1458 GMT

Price

US T BONDS JUN1 UScv1

156-27/32

-0-22/32

10YR TNotes JUN1 TYcv1

132-108/256

-0-48/256

Price

Current Yield %

Net Change (bps)

Three-month bills US3MT=RR

0.015

0.0152

-0.003

Six-month bills US6MT=RR

0.035

0.0355

0.001

Two-year note US2YT=RR

99-238/256

0.1608

0.008

Three-year note US3YT=RR

100-50/256

0.3079

0.011

Five-year note US5YT=RR

99-188/256

0.8046

0.023

Seven-year note US7YT=RR

99-208/256

1.2782

0.023

10-year note US10YT=RR

95-120/256

1.6288

0.027

30-year bond US30YT=RR

89-168/256

2.3607

0.042

DOLLAR SWAP SPREADS

Last (bps)

Net Change (bps)

U.S. 2-year dollar swap spread

9.25

-0.50

U.S. 3-year dollar swap spread

12.00

-0.25

U.S. 5-year dollar swap spread

7.50

-0.75

U.S. 10-year dollar swap spread

-3.50

-0.25

U.S. 30-year dollar swap spread

-30.75

-1.00

(Reporting by Chuck Mikolajczak; Editing by Richard Chang)

((charles.mikolajczak@tr.com; @ChuckMik; Reuters Messaging: charles.mikolajczak.thomsonreuters.com@reuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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