US Markets

Yield curve flatter as investors doubt inflation goal

Credit: REUTERS/THOMAS WHITE

U.S. Treasury yields dropped and the yield curve flattened on Thursday as investors grew skeptical of Federal Reserve efforts to stimulate economic growth and took stock of a report showing persistently high jobless claims.

By Ross Kerber

Sept 17 (Reuters) - U.S. Treasury yields dropped and the yield curve flattened on Thursday as investors grew skeptical of Federal Reserve efforts to stimulate economic growth and took stock of a report showing persistently high jobless claims.

The benchmark 10-year yield US10YT=RR was down 2.9 basis points at 0.6576% in morning trading after touching as low as 0.646%, the lowest since Sept. 4.

The trading marked a turnaround from Wednesday afternoon, when investors seemed to accept Fed actions could bring about more inflation.

But those expectations changed as government bondholders digested the Fed's message overnight, said Andrew Richman, senior fixed income analyst for Sterling Capital Management.

"It could be a reversal of yesterday's sentiment that yes, the Fed could let inflation run high, but still there is worry that we never hit that inflation target" of 2% sought by the central bank, Richman said.

Also helping send down yields on a risk-off morning was a new Labor Department report showing the number of Americans filing new claims for unemployment benefits fell last week, but remained at an extremely high level as the jobs recovery shifts into low gear and consumer spending cools amid fading fiscal stimulus.

Wall Street's main indexes opened lower after the jobs report.

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 53 basis points, about 3 basis points lower than Wednesday's close but still above its level of 33 basis points reached on July 24.

The two-year US2YT=RR U.S. Treasury yield, which typically moves in step with interest rate expectations, was down a basis point at 0.129% % in morning trading.

The yield on the three-month U.S. Treasury bill US3MT=RR was at 0.0938%, down 1.8 basis points and the first time the measure was below 0.1% since Aug. 27.

September 17 Thursday 9:25AM New York / 1325 GMT

Price

Current Yield %

Net Change (bps)

Three-month bills US3MT=RR

0.0925

0.0938

-0.018

Six-month bills US6MT=RR

0.1125

0.1141

-0.003

Two-year note US2YT=RR

99-254/256

0.129

-0.010

Three-year note US3YT=RR

99-240/256

0.1459

-0.016

Five-year note US5YT=RR

99-248/256

0.2563

-0.018

Seven-year note US7YT=RR

100-102/256

0.4417

-0.023

10-year note US10YT=RR

99-176/256

0.6576

-0.029

20-year bond US20YT=RR

98-236/256

1.1859

-0.041

30-year bond US30YT=RR

99-64/256

1.4058

-0.041

DOLLAR SWAP SPREADS

Last (bps)

Net Change (bps)

U.S. 2-year dollar swap spread

7.75

0.00

U.S. 3-year dollar swap spread

7.00

0.25

U.S. 5-year dollar swap spread

6.00

0.75

U.S. 10-year dollar swap spread

0.50

0.50

U.S. 30-year dollar swap spread

-37.00

0.75

(Reporting by Ross Kerber in Boston; editing by Jonathan Oatis)

((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.

Latest Markets Videos

Reuters

Reuters, the news and media division of Thomson Reuters, is the world’s largest international multimedia news provider reaching more than one billion people every day. Reuters provides trusted business, financial, national, and international news to professionals via Thomson Reuters desktops, the world's media organizations, and directly to consumers at Reuters.com and via Reuters TV.

Learn More