REFILE-TREASURIES-T-bill yields surge again as markets brace for rate hikes
LONDON, Sept. 28 (Reuters) – US Treasuries extended their sell off to a fourth day on Tuesday, with 10-year yields hitting new highs in late June while the TIPS market also began to factor in more future inflation. high.
The prospect of a hike in spot rates and less transient-than-expected inflation risk pushed two-year yields to 18-month highs.
The sell-off accelerated during European trading, with yields across the US curve up to 7.5 basis points higher on the day. European bond yields have also skyrocketed.
Two-year yields at 0.3167% have roughly doubled since June, when the U.S. Federal Reserve surprised markets by starting to forecast rate hikes for 2023.
“This validates a more hawkish dot plot and builds on what’s already built in,” said Vishnu Varathan, economics manager at Mizuho in Singapore, referring to the Fed’s rate projections, which now show a increase in 2022.
On Monday, the US government had to double the coupon on the new notes to 0.25% to reflect the higher overnight rate market prices for the next two years.
The move also reflects the impending rollover of the two-year futures contract on the December contract, which implies a return of around 0.35%.
Monday’s data showing an increase in orders for capital goods by U.S. companies last month could tip policymakers in favor of a rate hike sooner rather than later, Varathan added.
Five-year Treasuries were also under pressure and the yield, which rises when prices fall, crossed 1% for the first time since February 2020. It jumped 17 basis points in five sessions and held steady at 1.04% for the last time.
Benchmark 10-year yields jumped nearly 7 basis points to 1.55%, their highest since June. They rose nearly 25 basis points in September and are expected to experience their biggest monthly jump since March.
Rising inflationary pressures are starting to make investors nervous, with oil hitting three-year highs and Fed Chairman Jerome Powell signaling that the price pressure resulting from reopening bottlenecks could be stickier than that. ‘we didn’t think so at first.
The yield on 10-year inflation-protected US Treasury securities (TIPS) reached -0.82%, its highest since the end of June. This move pushed up the breakeven inflation rate by around 4 basis points, a sign of rising inflation expectations.
The breakeven points, however, remain below this year’s highs reached in March.
“The market thinks some of the inflation is a bit less transient… so longer bond investors want a bit more compensation,” said Martin Whetton, head of fixed income at Commonwealth Bank in Sydney. .
(Reporting by Tom Westbrook in Singapore, additional reporting by Sujata Rao and Dhara Ranasinghe in London Editing by Sherry Jacob-Phillips and Susan Fenton)