(Updates with Bowman, Bostic comments, auction)
By David Randall
NEW YORK, June 23 (Reuters) - Ten-year Treasury yields
inched higher but remained below 1.5% in muted trading on
Wednesday, one day after Federal Reserve Chairman Jerome Powell
reaffirmed in congressional testimony the central bank's view
that rising inflation will likely be temporary.
"We will not raise interest rates pre-emptively because we
fear the possible onset of inflation. We will wait for evidence
of actual inflation or other imbalances," Powell said in a
hearing before a U.S. House of Representatives panel.
Fed Governor Michelle Bowman and Atlanta Federal Reserve
Bank President Raphael Bostic echoed the central bank's
sentiment that high inflation will be temporary as the economy
settles back to normal after the coronavirus pandemic, though
above-average inflation may last longer than originally thought.
"Temporary is going to be a little longer than we expected
initially. ... Rather than it being two to three months, it may
be six to nine months," Bostic said in an interview on National
Public Radio's "Morning Edition."
At their meeting last week, Fed officials surprised many
market participants with a more hawkish tone and suggested that
the central bank may raise interest rates as soon as 2023.
The yield curve - a measure of expectations of the economy's
direction - was little changed. The spread between 5- and
30-year Treasury yields rose to 122.90 basis points, well above
the 107.80 that it hit Monday.
The Fed's policy stance will likely not change until its
Jackson Hole, Wyoming, meeting in late August, leaving Treasury
yields in a narrow trading range, analysts said.
"Absent much volatility on Fed rhetoric or even volatility
in Treasuries, technicals are set to remain in focus in the
interim," said Daniel Krieter, director of fixed income strategy
at BMO Capital Markets.
The Treasury auctioned $61 billion in five-year notes
Wednesday afternoon with a yield of 0.904%, the highest since
February 2020.
The Fed's reverse repurchase window took in a record $813.6
billion in cash from 73 counterparties, a sign investors see few
attractive options available in a low-yield environment.
The benchmark 10-year Treasury yield rose to 1.4869%, while
shorter-term 2-year yields edged higher to 0.2621%. Long
duration 30-year Treasury yields inched up to 2.1104%.
Price Current Net
Yield % Change
(bps)
Three-month bills 0.045 0.0456 0.003
Six-month bills 0.05 0.0507 0.000
Two-year note 99-186/256 0.2621 0.011
Three-year note 99-96/256 0.4617 0.019
Five-year note 99-94/256 0.8813 0.024
Seven-year note 100-16/256 1.2405 0.022
10-year note 101-68/256 1.4869 0.015
20-year bond 103-108/256 2.0398 0.008
30-year bond 105-216/256 2.1104 0.005
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 6.25 -0.75
spread
U.S. 3-year dollar swap 9.50 1.00
spread
U.S. 5-year dollar swap 7.25 1.00
spread
U.S. 10-year dollar swap -3.00 0.50
spread
U.S. 30-year dollar swap -32.50 1.25
spread (Reporting by David Randall; editing by Jonathan Oatis)
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