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TREASURIES-Yield curve steeper as traders look for Fed inflation guidance

Credit: REUTERS/GARY CAMERON

Longer-term U.S. Treasury yields rose on Wednesday and steepened a closely watched part of the yield curve for the second consecutive day as traders anticipated that Federal Reserve comments would raise inflation expectations.

By Ross Kerber

Aug 26 (Reuters) - Longer-term U.S. Treasury yields rose on Wednesday and steepened a closely watched part of the yield curve for the second consecutive day as traders anticipated that Federal Reserve comments would raise inflation expectations.

The benchmark 10-year US10YT=RR yield was up 2.1 basis points at 0.703% in morning trading.

Investors were betting that when he speaks on Thursday, Fed Chair Jerome Powell will create expectations of more inflation, said Jim Vogel, interest rate strategist for FHN Financial.

"People believe they will hear a broader view of how they (the Fed) will manage inflation targets, that suggests to many people that the curve will steepen and inflation expectations will continue to rise," Vogel said.

Powell and other Fed officials will speak at a virtual meeting traditionally held at the mountain resort of Jackson Hole, Wyoming. They are set to discuss the central bank's framework review to explore how monetary policy should adapt to changes in the economy.

Persistently low inflation and low interest rates have numbed the effects of the Fed's recession-fighting stimulus measures. Rising uncertainty about the economic outlook in the face of the coronavirus pandemic may add to pressure on the Fed to bolster its policy arsenal.

The Nasdaq opened higher on Wednesday after upbeat business updates from Salesforce and HP Enterprise, while the S&P 500 started on a more subdued note after closing at a record high for three sessions in a row.

Investors will watch the results of an auction of $51 billion worth of 5-year U.S. Treasury notes US5YT=RR due in the early afternoon. An auction of 2-year notes on Tuesday showed solid demand.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on 2- and 10-year Treasury notes, US2US10=TWEB seen as an indicator of economic expectations, was at 55 basis points, about 2 basis points higher than Tuesday's close and well above its recent low of 33 basis points on July 24.

The two-year US2YT=RR U.S. Treasury yield, which typically moves in step with interest rate expectations, was roughly unchanged at 0.1563%.

August 26 Wednesday 9:55AM New York / 1355 GMT

Price

Current Yield %

Net Change (bps)

Three-month bills US3MT=RR

0.1

0.1014

0.000

Six-month bills US6MT=RR

0.1125

0.1144

-0.003

Two-year note US2YT=RR

99-240/256

0.1563

0.002

Three-year note US3YT=RR

99-208/256

0.1884

0.008

Five-year note US5YT=RR

99-188/256

0.3044

0.012

Seven-year note US7YT=RR

99-36/256

0.5014

0.018

10-year note US10YT=RR

99-64/256

0.703

0.021

20-year bond US20YT=RR

98-144/256

1.2063

0.032

30-year bond US30YT=RR

99-4/256

1.4154

0.028

DOLLAR SWAP SPREADS

Last (bps)

Net Change (bps)

U.S. 2-year dollar swap spread

7.50

0.25

U.S. 3-year dollar swap spread

6.00

-0.25

U.S. 5-year dollar swap spread

4.75

0.00

U.S. 10-year dollar swap spread

-0.75

0.00

U.S. 30-year dollar swap spread

-36.00

1.00

(Reporting by Ross Kerber in Boston; Editing by Will Dunham)

((ross.kerber@thomsonreuters.com; (617) 856 4341; Reuters Messaging: Ross.Kerber.Reuters.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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