* Fed's Powell sees higher prices this year, but not
inflation
* Worse-than-expected jobless claims pressure yields
* U.S. 5/30 yield curve flattens, with spread at 148 basis
points
* U.S. to sell $120 bln in 3-year, 10-year, 30-year debt
next week
(Adds new comment, updates prices)
By Gertrude Chavez-Dreyfuss
NEW YORK, April 8 (Reuters) - U.S. Treasury yields fell on
Thursday, pressured by fresh dovish comments from Federal
Reserve Chair Jerome Powell and weaker-than-expected initial
jobless claims that highlighted the economy's bumpy recovery
from the pandemic.
At an International Monetary Fund event on Thursday, Powell
said a surge in spending as the U.S. economy reopens, along with
bottlenecks in supply, will likely push prices higher this year,
but would not result in the kind of yearly price increases that
would constitute inflation.
He added that the unevenness in the U.S. recovery remains an
issue.
Powell's remarks followed equally cautious Fed minutes on
the March policy meeting released on Wednesday, which reiterated
that the U.S. central bank was in no rush to raise interest
rates, and also weighed on Treasury yields.
"The market has been expecting the Fed to waver a bit on its
dovishness given that the acceleration in rates has been pretty
quick. But the Fed hasn't wavered on that," said Ellis Phifer,
managing director in fixed income research at Raymond James in
Memphis, Tennessee.
"Some Fed members have flinched a little bit, but overall
the doves continue to be in control," he added.
Thursday's higher-than-expected U.S. jobless claims also
pushed down yields. Data showed that initial claims for state
unemployment benefits totaled a seasonally adjusted 744,000 for
the week ended April 3, compared with 728,000 in the prior week.
Continued unemployment claims though fell to 3.73 million for
the week of March 27.
"Falling incidence of the coronavirus will lower initial
claims," said Stan Shipley, fixed income strategist, at Evercore
ISI in New York. He added that overall the data showed the
"labor market is continuing to heal and should be neutral for
Treasury yields."
But with a massive $370 billion in Treasury supply looming
over the next few weeks, Tom di Galoma, managing director at
Seaport Global Holdings said it's only a matter of time before
yields start shooting higher again.
"In my view, 10-year yields could easily trade back to 1.75%
next week," he added.
Supply starts next week with the auction of $120 billion in
3-year, 10-year- and 30-year debt.
Concerns about supply have steepened the yield curve for the
last three sessions, but it flattened a bit on Thursday. The
spread between 5-year notes and 30-year bonds narrowed to 148
basis points.
In afternoon trading, the U.S. 10-year Treasury yield was
down at 1.633% from 1.654% on Wednesday.
U.S. 30-year yields fell to 2.323% from
Wednesday's 2.336%.
U.S. 5-year note yields, which typically reflect interest
rate expectations, dropped for a fourth straight session to
0.84% from Wednesday's 0.858%.
Recent declines in the 5-year yield suggested that investors
do not believe the Fed will raise rates earlier than it has
indicated. At the March meeting, the median forecast of Fed
policymakers showed the central bank did not expect to raise
interest rates until 2024.
Despite the Fed's dovish comments in the policy meeting
minutes and Powell's cautious stance, the eurodollar futures
market, which tracks interest rate expectations, still has fully
priced in a Fed hike by March 2023.
April 8 Thursday 2:55PM New York / 1855 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 0.015 0.0152 0.000
Six-month bills 0.0325 0.033 0.003
Two-year note 99-244/256 0.1488 -0.004
Three-year note 99-204/256 0.3196 -0.002
Five-year note 99-144/256 0.84 -0.018
Seven-year note 99-176/256 1.297 -0.020
10-year note 95-100/256 1.6333 -0.021
20-year bond 94-100/256 2.226 -0.014
30-year bond 90-96/256 2.3238 -0.012
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap spread 12.75 -0.50
U.S. 3-year dollar swap spread 15.25 -0.75
U.S. 5-year dollar swap spread 11.75 -0.50
U.S. 10-year dollar swap 2.50 -0.50
spread
U.S. 30-year dollar swap -23.75 -0.25
spread (Reporting by Gertrude Chavez-Dreyfuss; Editing by Jonathan
Oatis and Andrea Ricci)
