Yields rise as investors watch banks, wait on Fed

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NEW YORK — Treasury yields rose on

Wednesday as investors continued to evaluate whether recent

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banking stresses will be contained and what tighter lending

standards emanating from recent bank failures will mean for

Federal Reserve policy.

Yields have risen from six-month lows reached on Friday as

stress in the banking sector appeared to subside, following the

collapse of Silicon Valley Bank and Signature Bank earlier this

month.

Greater confidence in the banking system has also increased

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the likelihood that the Fed will in turn be able to implement

another interest rate increase as it focuses on bringing down

inflation, but a lot can happen before the U.S. central bank’s

May 2-3 meeting.

“We have entered an extended period of uncertainty for the

economic and policy outlook. The reality is that there’s still a

great deal of unknowns linked to the regional and global banking

sector,” said Ian Lyngen, head of U.S. rates strategy at BMO

Capital Markets in New York.

“For the time being we appear to be in a moment of calm.

Risk assets seem to be performing reasonably well. But I think

they’re responding more to the potential for the contagion to be

ultimately limited and contained, whereas monetary policy makers

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are appropriately cautious given what could or could not

transpire over the next several weeks,” Lyngen said.

Personal Consumption Expenditures (PCE) data on Friday is

the next major U.S. economic focus while investors will also be

watching for any headlines relating to stress in the banking

sector.

Fed funds futures traders are now pricing in a 47% chance of

a 25 basis points increase in May, after seeing it as a long

shot late last week.

Benchmark 10-year yields rose 4 basis points to

3.606%. They are up from a six-month low of 3.285% reached on

Friday, but remain below a 15-year high of 4.338% on Oct. 21.

Two-year yields rose 7 basis points to 4.130%, up

from a six-month low of 3.555% on Friday but below the almost

16-year high of 5.084% hit on March 8.

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The closely watched yield curve between two-year and 10-year

notes was last at minus 53 basis points.

The Treasury Department will sell $35 billion in seven-year

notes on Wednesday, the final sale of $120 billion in short- and

intermediate-dated debt supply this week. The Treasury saw solid

demand for a $43 billion sale of five-year notes on Tuesday, but

weak interest in a $42 billion auction of two-year notes on

Monday.

March 29 Wednesday 9:20AM New York / 1320 GMT

Price Current Net

Yield % Change

(bps)

Three-month bills 4.6275 4.7473 -0.024

Six-month bills 4.7075 4.9026 0.054

Two-year note 99-132/256 4.1298 0.068

Three-year note 101-230/256 3.9385 0.069

Five-year note 99-146/256 3.72 0.066

Seven-year note 101-244/256 3.6773 0.053

10-year note 99-32/256 3.6057 0.038

20-year bond 98-252/256 3.949 0.033

30-year bond 96-184/256 3.8097 0.025

DOLLAR SWAP SPREADS

Last (bps) Net

Change

(bps)

U.S. 2-year dollar swap 31.75 -0.25

spread

U.S. 3-year dollar swap 15.75 -0.25

spread

U.S. 5-year dollar swap 5.50 -0.25

spread

U.S. 10-year dollar swap -2.25 -1.00

spread

U.S. 30-year dollar swap -48.75 -0.75

spread

(Reporting by Karen Brettell; editing by Jonathan Oatis)