U.S. yields dip as wage inflation shows sign of easing

Author of the article: Reuters Gertrude Chavez-Dreyfuss Published Jan 06, 2023  •  2 minute read Join the conversation NEW YORK — U.S. Treasury yields slipped on Friday, after data showed wages rose less than expected in Financial Post Top Stories Sign up to receive the daily top stories from the Financial Post, a division of…
U.S. yields dip as wage inflation shows sign of easing

Author of the article:

Reuters

Gertrude Chavez-Dreyfuss

Published Jan 06, 2023  •  2 minute read

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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

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

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

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)

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