(Adds results of 10-year TIPS auction)
By Herbert Lash
NEW YORK, July 22 (Reuters) – Yields on U.S. Treasuries
eased on Thursday after the auction of $16 billion in 10-year
TIPS was bid at a record low, while the latest jobless claims
report reinforced expectations the Federal Reserve’s policy
stance will remain dovish.
The bid at the TIPS auction, the largest ever, was the
lowest on record as real rates have never declined so much in
the past.
The sale was well received with submitted bids 2.50 times
the offer, with the 10-year awarded at -1.016% after trading the
entire morning cheaper than -1.0%, said Jim Vogel, interest rate
strategist at FTN Financial in Memphis.
Traders have valued inflation expectations based on what
they think investors will worry about next, rarely with any link
to fundamentals or communication from the Fed, Vogel said.
“Just like nominal UST yields, inflation break-evens have
been erratic all month,” he said in an e-mail.
The number of Americans filing new claims for jobless
benefits rose to a two-month high last week, the Labor
Department said in a report that nevertheless showed more people
are returning to work.
Initial claims for state unemployment benefits increased by
51,000 to a seasonally adjusted 419,000 for the week ended July
17, the highest level since mid-May. Economists polled by
Reuters had forecast 350,000 applications for the latest week.
The yield on 10-year Treasury notes fell 2.2
basis points to 1.260%.
The yield on the 30-year Treasury bond slid 3.1
basis points to 1.899%.
After several weeks of volatility, the market is settling
into a period of equilibrium before the next week’s meeting of
the Federal Open Market Committee, said Ben Jeffery, rate
strategist at BMO Capital Markets in New York.
The 10-year U.S. Treasury yield will likely trade in a range
of 1.25% to 1.3%, Jeffery said. The two-day meeting ends July
28.
“Trading volumes today are meaningfully lower than they have
been all week,” he said. “Positions are in the process of
starting to be set ahead of next week’s Fed meeting, so we’re
expecting a little bit of sideways into Wednesday.”
Yields on the benchmark note plunged almost 30 basis points
to a low of 1.128% early on Tuesday from July 13, when data for
June showed the biggest jump in U.S. consumer prices in 13
years. Yields have rebounded about 14 basis points since then.
A closely watched part of the U.S. Treasury yield curve
measuring the gap between yields on two- and 10-year Treasury
notes, seen as an indicator of economic
expectations, was at 105.8 basis points.
The two-year U.S. Treasury yield, which typically
moves in step with interest rate expectations, was down 0.8
basis points at 0.200%.
The breakeven rate on five-year U.S. TIPS was
last at 2.491%.
The 10-year TIPS breakeven rate was last at
2.3%, indicating the market sees inflation averaging that rate
annually for the next decade.

July 22 Thursday 1:52PM New York / 1752 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 0.05 0.0507 0.000
Six-month bills 0.05 0.0507 0.000
Two-year note 99-219/256 0.1998 -0.008
Three-year note 100-2/256 0.3724 -0.016
Five-year note 100-208/256 0.7072 -0.024
Seven-year note 101-148/256 1.0138 -0.021
10-year note 103-92/256 1.2599 -0.022
20-year bond 107-28/256 1.8209 -0.030
30-year bond 110-204/256 1.899 -0.031

DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 8.00 -0.25
spread
U.S. 3-year dollar swap 10.00 0.00
spread
U.S. 5-year dollar swap 8.25 0.75
spread
U.S. 10-year dollar swap 0.25 1.00
spread
U.S. 30-year dollar swap -27.00 1.75
spread (Reporting by Herbert Lash; Editing by Dan Grebler, Kirsten
Donovan)
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