(Updates prices, adds quotation, and recasts with 30-year auction)
Karen Brettell contributed to this article.
Reuters, NEW YORK, July 13 – Long-term Treasury yields climbed on Tuesday after the Treasury Department received low demand for a $24 billion auction of 30-year notes, which came after statistics showed inflation surged faster than expected in June.
The bonds were sold at a high yield of 2.00 percent, which was more than two basis points higher than where the debt had been trading prior to the auction.
The auction was held “was a colossal blunder. All of the measures were dismal, to say the least “In a note, Action Economics’ managing director for fixed income, Kim Rupert, wrote. “The auction was not helped by the significantly hotter-than-expected CPI report and the following curve flattening.”
The yield curve had flattened earlier on Tuesday as data revealed that consumer prices in the United States grew by the greatest in 13 years in June, owing to supply limitations and a further rebound in the costs of travel-related services from pandemic-low levels as the recovery gained traction.
After rising 0.6 percent in May, the consumer price index rose 0.9 percent last month, the most since June 2008. After gaining 3.8 percent in May, the core CPI increased 4.5 percent year over year, the highest increase since November 1991.
In a study, James Knightley, chief international economist at ING, said, “Yet another blowout inflation reading makes it increasingly difficult for the Fed to continue to its argument that elevated inflation readings are only ‘transitory.'”
Following the sale, benchmark 10-year rates increased to 1.398 percent.
After flattening to 109 basis points in the aftermath of the inflation figures, the yield curve between two-year and 10-year notes steepened to 115 basis points.
Prior to the auction, 30-year note rates had risen to 2.024 percent from 1.97 percent. The difference in yield between five-year notes and 30-year bonds has widened to 120 basis points.
When Fed Chair Jerome Powell goes before Congress on Wednesday and Thursday, he is certain to be asked about the inflation figures, and his responses will be scrutinized for any evidence that he is becoming more concerned about rising pricing pressures.
“There is some concern that some of these price hikes are coming in more faster than predicted,” said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York. “However, you can argue that a lot of this is due to the recovery.”
Fed officials this month felt considerable further progress on the US economic recovery “was largely assessed as not having yet been realized,” according to minutes from the Fed’s June policy meeting released last week, but agreed they should be ready to act if inflation or other dangers developed.
Tuesday, July 13th, 1:30 p.m. in New York / 1730 p.m. in London
Price Current Net Yield Change in Percentage (bps)
0.05 0.0507 0.000 0.05 0.0507 0.000 0.05 0.0507 0.000 0.05 0.0507 0.000
0.0525 0.0532 0.002 0.0525 0.0532 0.002 0.0525 0.0532 0.002 0.0525 0.0532
99-191/256 0.2548 0.022 0.022 0.022 0.022 0.022 0.022 0.022 0.022 0.022
99-184/256 0.4695 0.039 99-184/256 0.4695 0.039 99-184/256 0.4695 0.039 99-184/
100-48/256 0.040 0.040 0.040 0.040 0.040 0.040 0.040 0.040 0.040 0.040 0.0
Note with a seven-year maturity of 100-168/256 1.1516 0.036 0.036 0.036 0.036 0.036
102-20/256 is a ten-year note with a maturity of ten years. 1.3981 0.035 0.035 0.035 0.035 0.035
104-232/256 1.9505 0.035 20-year bond 107-212/256 2.0241 0.031 30-year bond 107-212/256 2.0241 0.031
SWAP DOLLAR SPREADS
Last Net Change (bps) (bps)
7.50 0.25 spread on a two-year dollar swap in the United States
9.50 -2.00 spread on a three-year dollar swap in the United States
8.00 0.00 spread on a 5-year dollar swap in the United States
-0.75 0.00 spread on a 10-year dollar swap in the United States
-27.50 0.00 spread on a 30-year dollar swap in the United States (Karen Brettell contributed reporting; Andrea Ricci and Dan Grebler edited the piece.)/n
