Yields bounce, Fed speakers in focus before blackout period

NEW YORK — U.S. Treasury yields rose

on Monday as investors watched Federal Reserve speakers for any

new guidance on whether the U.S. central bank is likely to stop

hiking rates after an expected increase in May.

Softening inflation data has added to expectations that the

Fed is closer to ending its tightening cycle and the economy is

expected to slow as a result of higher rates.

Growth remains relatively solid for now, however, indicating

that a recession is unlikely at least for the near term. That

could keep the Fed on a tightening path, or at least likely to

maintain rates at high levels.

“It will take time and we’re still in the early phases of

slowing,” said Guy LeBas, chief fixed income strategist at

Janney Montgomery Scott in Philadelphia.

Investors will focus on comments from Fed speakers this week

for any new indications on whether further rate hikes are likely

after May. The officials will enter into a blackout period from

April 22 ahead of the Fed’s May 2-3 meeting.

Fed Governor Christopher Waller said on Friday that U.S.

central bankers “haven’t made much progress” in returning

inflation to their 2% target and need to move interest rates

higher still.

The head of the Bank of International Settlements also said

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on Monday that to avoid a long-term “high-inflation regime”

rates may need to stay higher and for longer than previously

thought, even at the expense of slowing down economies.

Yields rose on Friday after some components of retail sales

data for March were not as weak as feared, even though sales

fell during the month. The data also still pointed to a strong

first quarter.

“The March retail numbers weren’t great or anything, but

after inflation consumer spend remains pretty buoyant,” LeBas

said.

Yields hit session highs on Monday after the NY Empire State

Manufacturing index unexpectedly rose in April. Other data

showed that confidence among U.S. single-family homebuilders

improved for a fourth straight month in April.

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Yields were also due for a bounce after dropping sharply in

March. Benchmark 10-year yields rose 7 basis points

to 3.591% on Monday, and are up from a seven-month low of 3.253%

on April 6.

Two-year yields gained 9 basis points to 4.188%.

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

was last at minus 60 basis points.

Meanwhile, some investors and analysts expect the economy to

be further hurt by tighter lending standards following the

collapse of two regional banks including Silicon Valley Bank in

mid-March.

Goldman Sachs said in a report dated April 14 that it has

lowered its Treasury yield expectations as it anticipates slower

growth as a result of tighter credit conditions, which the

bank’s economists estimate will lower gross domestic product

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growth by 0.4% over the year.

Goldman now expects 10-year yields to end the year at 3.9%,

down from its previous forecast of around 4.2%.

April 17 Monday 3:00PM New York / 1900 GMT

Price Current Net

Yield % Change

(bps)

Three-month bills 4.965 5.0944 -0.002

Six-month bills 4.8525 5.054 0.031

Two-year note 99-107/256 4.1878 0.085

Three-year note 99-138/256 3.9146 0.076

Five-year note 99-176/256 3.6943 0.083

Seven-year note 99-232/256 3.6401 0.075

10-year note 99-64/256 3.5908 0.069

20-year bond 99-108/256 3.9169 0.066

30-year bond 96-208/256 3.8044 0.067

DOLLAR SWAP SPREADS

Last (bps) Net

Change

(bps)

U.S. 2-year dollar swap 30.00 0.50

spread

U.S. 3-year dollar swap 19.75 1.75

spread

U.S. 5-year dollar swap 7.25 0.50

spread

U.S. 10-year dollar swap -1.50 0.00

spread

U.S. 30-year dollar swap -43.00 0.25

spread

(Reporting by Karen Brettell in New York

Editing by Ed Osmond and Matthew Lewis)