TREASURIES-U.S. yields inch higher as stocks stage rebound
* U.S. 10-, 30-year yields on track for weekly fall
* Univ. of Michigan 5-year inflation outlook falls in Oct
* U.S. 10-year yield between 3 pct-3.25 pct unsustainable -analyst
(Adds new comment, updates prices, table) NEW YORK, Oct 12 (Reuters) – U.S. Treasury yields edged higher on Friday, rising from the previous session on Wall Street’s selloff, as equities recovered globally and investors unwound safe-haven bids. Some market participants were, however, skeptical that rates could go higher again as quickly as they did last week. Yields on both the benchmark U.S. 10-year notes and 30-year bonds have fallen 9 basis points this week, on track for their largest weekly fall in nearly five months. After a two-day rout, shares on Wall Street were higher, although some analysts said Friday’s gains do not mean that the turbulence is over. U.S. stocks sold off this week, hurt by the prospect of rising rates. “We’re sure the Fed is paying close attention to the equity rout,” said John Taylor, president of macro research firm Taylor Global Vision in New York. “For now, it’s sit back and watch. But the Fed has got be anxious.” “More of this nasty environment and there is no hike in December,” he added, noting that a persistent sell-off focuses the debate on the timing of the next rate cut. In afternoon trading, U.S. 10-year note yields were at 3.140 percent, slightly up from 3.131 percent late Thursday. U.S. 30-year bond yields rose to 3.315 percent, from Thursday’s 3.305 percent. On the short end of the curve, U.S. two-year yields were at 2.836 percent. “The market will definitely re-test the highs in yields, but I don’t know how high they can go,” said Lou Brien, market strategist at DRW Trading in Chicago, “I don’t think they can go much higher.” Brien believes that a U.S. 10-year yield between 3.0 to 3.25 percent would be unsustainable. “The long-end moves to the beat of inflation and inflation expectations, and those are relatively low and well-anchored,” said DRW’s Brien. For instance, the University of Michigan consumer sentiment report on Friday showed a preliminary index for October of 99, slightly lower than expectations. But more importantly, the five-year inflation outlook component of the survey, a key measure that the Fed looks at, was at 2.3 versus 2.5 in September. Jon Hill, rates strategist, at BMO Capital Markets in New York said that the 2.3 reading on inflation outlook was tied for the lowest level on record. “With (Fed Chair Jerome) Powell’s focus on series such as this as a ‘key’ input for monetary policy, this will serve as a dovish talking point, and help keep long tenor yields in check,” Hill said. The University of Michigan report followed U.S. data on Thursday that also showed tame inflation: a weaker-than-expected rise in U.S. consumer prices for September in both the headline and core number.
October 12 Friday 2:58PM New York / 1858 GMT
Price Current Net Yield % Change
(bps)
Three-month bills 2.2275 2.2707 0.005 Six-month bills 2.38 2.4418 0.000 Two-year note 99-212/256 2.8405 0.001 Three-year note 99-218/256 2.927 0.000 Five-year note 99-116/256 2.9943 0.007 Seven-year note 99-124/256 3.0828 0.010 10-year note 97-196/256 3.1406 0.010 30-year bond 94-12/256 3.3156 0.011
DOLLAR SWAP SPREADS
Last (bps) Net
Change (bps)
U.S. 2-year dollar swap 19.25 0.25
spread
U.S. 3-year dollar swap 16.75 0.50
spread
U.S. 5-year dollar swap 12.25 -0.50
spread
U.S. 10-year dollar swap 4.25 -0.50
spread
U.S. 30-year dollar swap -10.50 0.00
spread
(Reporting by Gertrude Chavez-Dreyfuss; Editing by Jeffrey Benkoe and Nick Zieminski)
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