Risk-on sentiment, Fed taper talk lift yields
By Karen Pierog
CHICAGO, Dec 2 (Reuters) - U.S. Treasury yields headed higher on Thursday as investors returned to riskier assets and Federal Reserve officials talked up a quicker end to the central bank's bond purchases.
The benchmark 10-year yield US10YT=RR , which had fallen to a session low of 1.409%, was last about a basis point higher at 1.4426%. Yields move inversely to prices.
The 30-year yield US30YT=RR was last 1.5 basis points lower at 1.7625%. Earlier in the session, it tumbled to its lowest level since January at 1.737%, benefiting from a flight-to-quality trade sparked by concerns about the impact of the COVID-19 Omicron variant.
The two-year yield US2YT=RR rose to a one-week high of 0.63%. It was last up 5.6 basis points at 0.6186%.
Jim Vogel, interest rate strategist at FHN Financial in Memphis, Tennessee, pointed to the rally on Wall Street, where the S&P 500 was up about 1.5%.
"You've got a little bit of a movement back into risk assets, but more importantly you have Fed speakers on the tape reinforcing the faster taper message," he said.
"Everyone in the market is reading tea leaves that a faster taper improves the odds, if not guarantees the odds, that we're going to see a first-half hike based on what we know now," Vogel added.
Federal Reserve Bank of Atlanta President Raphael Bostic told the Reuters Next conference on Thursday it would be appropriate to conclude the tapering of the central bank's bond-buying program by the end of March.
He also said if inflation continues to run as high as 4% through next year, that would present a good case for pulling forward interest rate hikes.
At another event, San Francisco Fed President Mary Daly said it might be time to start crafting a plan for raising interest rates to address above-target inflation.
A rates outlook released by BofA Global Research on Thursday pegged the 10-year yield at 1.75% in 2022's first quarter, rising to 2% in the fourth quarter.
Meanwhile, some Treasury bills due this month were trading at elevated yields on fears the U.S. government could run out of money in as soon as two weeks.
On Friday, all eyes will be on the U.S. government's employment report. According to a Reuters survey of economists, non-farm payrolls probably increased by 550,000 jobs in November after rising 531,000 in October. The unemployment rate is forecast dipping to 4.5% from 4.6% in October.
Ahead of the data, the ADP National Employment Report on Wednesday showed private payrolls increased by 534,000 last month, while the Labor Department reported on Thursday that initial claims for state unemployment benefits rose 28,000 to a seasonally adjusted 222,000 for the week ended Nov. 27.
"With the ADP number, the claims number, the employment story seems to be intact and pretty solid, so (the jobs report) would have to be something that either is aggressively stronger or weaker to derail that narrative," said Tony Rodriguez, head of fixed income strategy at Nuveen.
Yield curves flattened with the closely watched gap between two-year and 10-year note yields US2US10=TWEB at its narrowest in 11 months. It was last down 2.7 at 82.20 basis points.
The five-year note and 30-year bond US5US30=TWEB yield curve was last 4.90 basis points flatter at 55.40 basis points.
The U.S. Treasury on Thursday announced auctions next week for $54 billion of three-year notes, $36 billion of 10-year notes, and $22 billion of 30-year bonds. December 2 Thursday 3:20PM New York / 2020 GMT
Yield % Change
(bps) Three-month bills US3MT=RR 0.0525
-0.003 Six-month bills US6MT=RR
-0.010 Two-year note US2YT=RR
0.056 Three-year note US3YT=RR
0.056 Five-year note US5YT=RR
0.051 Seven-year note US7YT=RR
0.031 10-year note US10YT=RR
0.009 20-year bond US20YT=RR
-0.007 30-year bond US30YT=RR
DOLLAR SWAP SPREADS
Last (bps) Net
U.S. 2-year dollar swap
U.S. 3-year dollar swap
U.S. 5-year dollar swap
U.S. 10-year dollar swap
U.S. 30-year dollar swap
Reporting by Karen Pierog, Tom Westbrook and Yoruk Bahceli; Editing by Devika Syamnath, Angus MacSwan, Susan Fenton and Dan Grebler
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.