(Updates prices, adds details 10-year auction)
By Chuck Mikolajczak
NEW YORK, May 12 (Reuters) - U.S. Treasury yields climbed on
Wednesday, with the 10-year note hitting its highest level in a
month, following a much stronger than expected reading on
consumer prices that heightened worries the economy may be
heading towards a sustained period of higher inflation.
The Labor Department said the consumer price index surged
0.8% in April, its largest rise since June 2009, after rising
0.6% in the prior month. The "core" reading, which excludes the
more volatile food and energy portions, jumped 0.9%.
Expectations called for overall CPI to rise 0.2% and the core
reading to climb 0.3%.
The yield on 10-year Treasury notes was up 7.1
basis points to 1.695%. The yield climbed as high as 1.697%, its
highest since April 13 and on pace for its biggest one-day basis
point increase since March 18.
The U.S. Federal Reserve has repeatedly stated that it views
any inflation to be transitory in nature. On Wednesday, Fed Vice
Chair Richard Clarida said it will be "some time" before the
U.S. economy is healed enough for the Federal Reserve to
consider pulling back its crisis levels of support and he
expects the rise in prices to be temporary.
"The market is getting ahead of itself in terms of pricing
in a higher chance of inflation and rates rising while the Fed
is being very clear and very cautious in setting expectations,
telling people you have to be patient, you may see a lot of
downside risk," said Kelly Ye, director of research at IndexIQ
in New York.
"So it is going to be a continued push-and-pull in terms of
the Fed telling people you guys are getting ahead of yourself
while investors are scared and thinking about what they are
going to do if inflation really starts to rise."
Analysts have noted there is likely to be higher reading in
economic data in the coming months, as year-over-year
comparisons are extreme due to the severe economic shutdown that
began in March 2020.
The yield on the 30-year Treasury bond was up
6.3 basis points to 2.415%.
The breakeven rate on five-year U.S. Treasury
Inflation-Protected Securities (TIPS) was last at
2.734%, after closing at 2.697% on Tuesday, near its highest
close in just over a decade.
The 10-year TIPS breakeven rate was last at
2.566%, indicating the market sees inflation averaging 2.5% a
year for the next decade.
A Treasury auction of $41 billion in 10-year notes was
strong, with some analysts noting the rise in yields may have
attracted buyers. A $27 billion sale of 30-year bonds on
Thursday will bring even more supply to the market.
May 12 Wednesday 2:59PM New York / 1859 GMT
Price
US T BONDS JUN1 155-18/32 -1-12/32
10YR TNotes JUN1 131-232/256 -0-140/2
56
Price Current Net
Yield % Change
(bps)
Three-month bills 0.015 0.0152 0.000
Six-month bills 0.0325 0.033 -0.002
Two-year note 99-235/256 0.1668 0.006
Three-year note 99-174/256 0.3576 0.028
Five-year note 99-114/256 0.8644 0.063
Seven-year note 99-98/256 1.3431 0.070
10-year note 94-228/256 1.6952 0.071
30-year bond 88-148/256 2.4153 0.063
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 10.25 0.75
spread
U.S. 3-year dollar swap 11.25 -1.25
spread
U.S. 5-year dollar swap 8.25 0.25
spread
U.S. 10-year dollar swap -3.00 0.00
spread
U.S. 30-year dollar swap -30.75 -0.75
spread
(Reporting by Chuck Mikolajczak;
Editing by Chizu Nomiyama and Andrea Ricci)
