Yields drop after US consumer price data

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NEW YORK — U.S. Treasury yields fell

on Wednesday after consumer price data for April came in roughly

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in line with economists’ expectations, a relief to some

investors who were concerned that price pressures may have been

stronger than expected.

In the 12 months through April, the Consumer Price Index

(CPI) increased 4.9% after advancing 5.0% on a year-on-year

basis in March. The core CPI gained 5.5% after advancing by 5.6%

in March.

“It came in actually as expected, but I think there may have

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been people looking for a stronger number, so that’s why we had

a decent reaction,” said Priya Misra, head of global rates

strategy at TD Securities in New York.

Benchmark 10-year note yields were last at

3.439%, down 8 basis points on the day, while two-year yields

dropped 12 basis points to 3.904%. The inversion in

the yield curve between two-year and 10-year notes

narrowed to minus 47 basis points.

The Federal Reserve is seen as likely to leave rates

unchanged when it meets in June unless there is a surprise

resurgence in price pressures.

That said, still high inflation could also make it unlikely

that the Fed will cut rates anytime soon.

“The details of the print suggest that we are still a

meaningful distance from the Fed’s 2% target, giving little

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reason for the Fed to cut this year,” Alexandra Wilson-Elizondo,

Co-head of portfolio management for Multi Asset Solutions at

Goldman Sachs Asset Management said in a note. “We believe the

Fed will remain on hold for longer than markets are pricing.”

Fed funds futures traders are pricing in a 97% likelihood

that the Fed will leave rates unchanged at its June meeting, and

also see around 78 basis points of rate cuts by year-end.

The CPI report for May is due on June 13, one day before the

Fed will conclude its two-day meeting.

Ongoing concerns about the U.S. regional banking sector and

the debt ceiling standoff, if it is not resolved, could also

make the U.S. central bank more likely to pause rate hikes.

One-month Treasury bill yields also hit a record

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high of 5.811% earlier on Wednesday as some investors avoided

U.S. government debt that comes due when the Treasury could run

out of funds, as Congress continues to negotiate on raising the

debt ceiling.

Detailed talks on raising the U.S. government’s $31.4

trillion debt limit kicked off on Wednesday with Republicans

insisting on deep spending cuts, the day after Democratic

President Joe Biden and top congressional Republican Kevin

McCarthy’s first meeting in three months.

The Treasury sold $35 billion in 10-year notes on

Wednesday to average demand, the second auction of $96 billion

in coupon-bearing supply this week.

The notes sold at a

high yield of 3.448%

, less than a basis point above where they had traded before

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the auction. Demand was 2.45 times the amount of debt on offer,

the highest since February.

The government saw strong demand for $40 billion in

three-year notes on Tuesday and will also sell $21 billion in

30-year bonds on Thursday.

May 10 Wednesday 3:00PM New York / 1900 GMT

Price Current Net

Yield % Change

(bps)

Three-month bills 5.08 5.2176 -0.063

Six-month bills 4.9 5.1082 -0.051

Two-year note 99-242/256 3.9036 -0.120

Three-year note 100-46/256 3.5613 -0.128

Five-year note 100-148/256 3.3725 -0.122

Seven-year note 100-160/256 3.3984 -0.102

10-year note 100-128/256 3.4388 -0.083

20-year bond 100-4/256 3.8735 -0.058

30-year bond 96-240/256 3.7974 -0.052

DOLLAR SWAP SPREADS

Last (bps) Net

Change

(bps)

U.S. 2-year dollar swap 21.50 -0.25

spread

U.S. 3-year dollar swap 17.25 3.25

spread

U.S. 5-year dollar swap 9.25 0.50

spread

U.S. 10-year dollar swap 1.00 0.75

spread

U.S. 30-year dollar swap -43.25 0.25

spread

(Reporting by Karen Brettell; Additional reporting by Herb Lash

in New York; Editing by Andrew Heavens, Andrea Ricci and Diane

Craft)