US Markets

TREASURIES-Yields stay in comfort zone as traders eye Fed intentions

Credit: REUTERS/THOMAS WHITE

U.S. Treasury yields stabilized within their recent trading ranges on Friday as investors took in new inflation-tolerant messages from the Federal Reserve.

By Ross Kerber

Sept 18 (Reuters) - U.S. Treasury yields stabilized within their recent trading ranges on Friday as investors took in new inflation-tolerant messages from the Federal Reserve.

The benchmark 10-year US10YT=RR yield was up less than a basis point at 0.6904% in afternoon trading.

The level was within a six-basis point trading range for the note this week and close to where it stood on Wednesday before Fed leaders suggested hike rates could be years away.

Top Fed officials on Friday began fleshing out how they would apply their new approach of keeping interest rates near zero until inflation has hit the Fed's 2% target and is on track "to moderately exceed" it "for some time."

Kevin Flanagan, head of fixed income strategy for WisdomTree, said government bondholders on Friday seemed cautious that the Fed's strategy would stimulate a fast economic recovery, despite some positive indications like an estimate by Atlanta Fed researchers that third-quarter GDP growth will be 32% from the previous quarter.

"The bond market is keeping these numbers at arms' length," Flanagan said.

U.S. stocks turned lower in volatile trading on Friday as worries about rising coronavirus cases and a patchy economic recovery dampened risk sentiment, with technology-related stocks reversing early gains to extend their declines to a third day.

The U.S. current account deficit soared to its highest level in nearly 12 years in the second quarter as the COVID-19 pandemic weighed on the exports of goods and services, the Commerce Department said on Friday.

U.S. consumer sentiment increased in early September, with Democrats more upbeat about the economy's outlook compared to Republicans ahead of the Nov. 3 presidential election, according to a University of Michigan survey.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, US2US10=RR seen as an indicator of economic expectations, was at 55 basis points, roughly unchanged since Thursday's close and well above the 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 up less than a basis point at 0.1371%.

September 18 Friday 2:26PM New York / 1826 GMT

Price

Current Yield %

Net Change (bps)

Three-month bills US3MT=RR

0.0925

0.0938

0.000

Six-month bills US6MT=RR

0.11

0.1116

0.000

Two-year note US2YT=RR

99-250/256

0.1371

0.004

Three-year note US3YT=RR

99-232/256

0.1565

0.000

Five-year note US5YT=RR

99-224/256

0.2755

0.005

Seven-year note US7YT=RR

100-52/256

0.4702

0.005

10-year note US10YT=RR

99-96/256

0.6904

0.008

20-year bond US20YT=RR

98-52/256

1.227

0.016

30-year bond US30YT=RR

98-60/256

1.4479

0.021

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

7.00

0.25

U.S. 5-year dollar swap spread

5.75

0.25

U.S. 10-year dollar swap spread

0.50

0.25

U.S. 30-year dollar swap spread

-36.50

0.00

(Reporting by Ross Kerber in Boston; Editing by Steve Orlofsky and David Gregorio)

((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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