Author of the article:
Reuters
Gertrude Chavez-Dreyfuss
Published Jan 06, 2023 • 2 minute read
NEW YORK — U.S. Treasury yields slipped
on Friday, after data showed wages rose less than expected in
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December even though the economy created more jobs than
anticipated, affirming the belief that the Federal Reserve could
be nearing a pause in its rate-hiking cycle.
A widely-tracked part of the U.S. yield curve, measuring the
gap between yields on two- and 10-year Treasury notes
, ultimately lessened its inversion to -69.4 basis
points (bps). The inversion went as deep as -79.20 bps right
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after the jobs report, the most inverted in three weeks.
An inverted curve typically foreshadows recession.
Data showed that U.S. nonfarm payrolls rose 223,000 last
month. Economists polled by Reuters had forecast payrolls
increasing by 200,000 jobs.
Average hourly earnings rose 0.3% in December after 0.4% in
the prior month. That lowered the year-on-year increase in wages
to 4.6% from 4.8% in November.
“A report like this shows that some of the heat is coming
off the jobs market,” said Keith Buchanan, portfolio manager at
GLOBALT Investments in Atlanta.
“The Federal Reserve has indicated that they are willing to
pause and let cumulative effects of past rate hikes continue to
filter through the system. I definitely think the Fed is looking
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for a moment to pause and this can lead them to do it. Of
course, we would need other reports to confirm this,” he added.
In mid-morning trading, U.S. 10-year yields fell
1.3 bps to 3.708%.
U.S. 30-year yields, on the other hand, rose 1.2 bps to
3.814%.
On the shorter-end of the curve, U.S. two-year yields slid
4.7 bps to 4.406%.
The rate futures market has priced in a 67% chance of a
25-bps hike next month, and another hike of the same magnitude
at the March meeting.
The peak fed funds rates is seen at 5%, expected to be
reached at the June policy gathering.
In other segments of the Treasuries market, the U.S.
breakeven inflation rates were higher across the board.
The breakeven rate on five-year U.S. Treasury
Inflation-Protected Securities (TIPS) was last at
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2.28%. The five-year breakeven rate suggested that investors
expect inflation, as measured by the consumer price index, to
average around 2.28% over the next five years.
The 10-year TIPS breakeven rate was last at
2.239%, up 1.3 bps.
January 6 Friday 9:44 AM New York/1444 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 4.5325 4.6463 0.024
Six-month bills 4.68 4.8574 0.008
Two-year note 99-174/256 4.4205 -0.033
Three-year note 99-132/256 4.1764 -0.026
Five-year note 99-236/256 3.8922 -0.019
Seven-year note 100-88/256 3.8182 -0.013
10-year note 103-80/256 3.7197 -0.002
20-year bond 100-60/256 3.9825 0.011
30-year bond 103-96/256 3.8095 0.011
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 29.00 0.75
spread
U.S. 3-year dollar swap 10.25 0.00
spread
U.S. 5-year dollar swap 1.00 0.50
spread
U.S. 10-year dollar swap -5.25 0.00
spread
U.S. 30-year dollar swap -46.50 -0.25
spread
(Reporting by Gertrude Chavez-Dreyfuss)
