US Markets

TREASURIES-Yields retreat from highs in range-bound market

Credit: REUTERS/THOMAS WHITE

U.S. Treasury yields backpedaled from earlier highs on Wednesday after an announcement of second quarter auction sizes and data showing a big jobs gain in April failed to shake the market out of its holding pattern.

By Karen Pierog

CHICAGO, May 5 (Reuters) - U.S. Treasury yields backpedaled from earlier highs on Wednesday after an announcement of second quarter auction sizes and data showing a big jobs gain in April failed to shake the market out of its holding pattern.

The benchmark 10-year yield US10YT=RR, which hit a session high of 1.626%, was last up less than a basis point at 1.5996%, holding below a 14-month high of 1.776% reached on March 30.

Tony Rodriguez, head of fixed income strategy at Nuveen, said Treasuries were "definitely in a period of low volatility.

"It's pretty range bound here," he said. "We think we'll see higher rates as we move through the year."

In its quarterly refunding announcement, the Treasury Department said it will keep its issuance of notes and bonds steady, with sales of $58 billion of three-year notes, $41 billion of 10-year notes, and $27 billion of 30-year bonds scheduled for next week.

It added that it may take certain extraordinary measures if Congress does not raise or suspend the U.S. debt limit in a timely manner and that it expects to have a cash balance of around $450 billion when the debt limit suspension expires on July 31.

Rodriguez said while there should be solid demand for the upcoming auctions, they will test investor appetite given that a poor auction of 7-year notes earlier this year led to market volatility.

On Monday, the Treasury said it plans to borrow $463 billion in the second quarter, assuming an end-of-June cash balance of $800 billion, as spending increases in response to the pandemic. That was much bigger than its February estimate of $95 billion, which preceded the March enactment of the $1.9 trillion American Rescue Plan.

The ADP National Employment Report showed private payrolls rose by 742,000 jobs last month. Data for March was revised higher to show 565,000 jobs added instead of the initially reported 517,000. Economists polled by Reuters had forecast private payrolls would increase by 800,000 jobs in April.

Rodriguez said the market's real focus will be on the U.S. Labor Department's report due out on Friday and the potential that an unexpectedly much higher or lower number of job gains could move the Treasury market.

"I think it would have to be closer to 1.2 million (in jobs gains) to have the market really feel like growth is accelerating at a pace that's a little above what people expected coming into this," he said.

The two-year Treasury yield US2YT=RR, which typically moves in step with interest rate expectations, was last less than a basis point higher at 0.1645%.

A closely watched part of the yield curve that measures the gap between yields on two- and 10-year Treasury notes US2US10=RR was last less than a basis point flatter at 142.45 basis points.

The overnight repo rate USONRP=, which measures short-term borrowing costs, fell to 0.01% on Wednesday from 0.02% on Tuesday.

May 5 Wednesday 9:31AM New York / 1331 GMT

Price

Current Yield %

Net Change (bps)

Three-month bills US3MT=RR

0.02

0.0203

0.005

Six-month bills US6MT=RR

0.04

0.0406

0.000

Two-year note US2YT=RR

99-236/256

0.1645

0.002

Three-year note US3YT=RR

100-40/256

0.3216

0.003

Five-year note US5YT=RR

99-168/256

0.8205

0.001

Seven-year note US7YT=RR

99-216/256

1.2734

0.000

10-year note US10YT=RR

95-184/256

1.5996

0.008

20-year bond US20YT=RR

95-96/256

2.1636

0.014

30-year bond US30YT=RR

91-104/256

2.2737

0.008

DOLLAR SWAP SPREADS

Last (bps)

Net Change (bps)

U.S. 2-year dollar swap spread

10.75

-0.50

U.S. 3-year dollar swap spread

14.00

0.00

U.S. 5-year dollar swap spread

9.75

0.25

U.S. 10-year dollar swap spread

-1.00

-0.25

U.S. 30-year dollar swap spread

-26.75

-0.25

(By Karen Pierog; Editing by Kirsten Donovan)

((Tony Rodriguez, head of fixed income strategy at Nuveen))

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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