(Adds remarks, comment about Fed minutes)
By Herbert Lash
NEW YORK, May 19 (Reuters) - U.S. Treasury yields jumped on
Wednesday on news Federal Reserve policymakers in April hinted
at a possible shift in future policy, conjuring up memories of a
2013 market sell-off known as the 'taper tantrum.'
Minutes of the U.S. central bank's April 27-28 meeting said
a number of policymakers thought if the U.S. economy continued
rapid progress, it would be appropriate "at some point" in
upcoming meetings to begin discussing tapering government bond
purchases.
The mere hint of "taper talk" was enough to spark a sell-off
in bonds and send stocks lower, said Patrick Leary, chief market
strategist and senior trader at Incapital.
The minutes suggested the beginning of a consensus among
policymakers to lean more towards 'we should start this taper
talk a little sooner rather than later,' Leary said.
The minutes were slightly hawkish on the margin, making the
market a little bit more anxious, he said.
"Planting a few seeds like this well ahead of time lets the
market get in front of it so when the final taper is announced,
we'll all expect it, it won't be a surprise," Leary said.
The yield on 10-year Treasury notes was up 3.8
basis points to 1.680%, pulling back slightly from a day's high
of 1.6920%.
The bond sell-off started earlier in the session when an
auction of $27 billion in 20-year Treasuries was met with weak
demand, Leary said. It was the fifth time in row for a poorly
received 20-year Treasury auction, he said.
Fed officials have pledged to maintain ultra-loose policies,
betting that an unexpected surge in consumer prices last month
stemmed from temporary forces that will soon ease and that the
U.S. jobs market needs more time to get people back to work.
Michael Brown, senior analyst at payments firm Caxton in
London said the market over-reacted to the minutes.
"Not only because of the jobs data, but because the minutes
can always place too much emphasis on a couple of hawkish
outliers on the committee, which in turn sees the market place
too much weight on their remarks," Brown said.
Comments from Fed officials since the April 27-28 meeting
have indicated that if anything the employment data from April
cemented the view that it was still too early to discuss changes
to the Fed's $120 billion in monthly bond purchases.
Earlier Treasury yields had fallen after digital currencies
bitcoin and ethereum posted their biggest
single-day plunge since March 2020.
The losses in the market capitalization for the digital
currency sector approached $1 trillion after China banned
financial and payment institutions from providing cryptocurrency
services.
Atlanta Fed President Raphael Bostic and St. Louis Fed
President James Bullard in separate remarks on Wednesday
indicated there was little on the horizon to be concerned about.
Bostic in a Bloomberg TV interview said the time to change
monetary policy had not been reached and Bullard said if
market-based inflation expectations "run away from us" action
might be needed, but that has not happened.
The yield on the 30-year Treasury bond was up
1.9 basis points to 2.383%.
The breakeven rate on five-year U.S. Treasury
Inflation-Protected Securities (TIPS) was last at
2.664%, after closing at 2.730% on Tuesday, near its highest
close in just over a decade. The rate was just shy of 2% at the
end of 2020.
The 10-year TIPS breakeven rate was last at
2.503%, indicating the market sees inflation averaging 2.5% a
year for the next decade.
May 19 Wednesday 3:21PM New York / 1921 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 0.015 0.0152 0.000
Six-month bills 0.025 0.0254 -0.005
Two-year note 99-240/256 0.1572 0.006
Three-year note 99-178/256 0.3527 0.024
Five-year note 99-118/256 0.8616 0.041
Seven-year note 99-116/256 1.3327 0.046
10-year note 99-124/256 1.6813 0.039
20-year bond 93-76/256 2.2993 0.030
30-year bond 99-208/256 2.3838 0.020
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
GooU.S. 2-year dollar swap 10.00 0.00
spread
U.S. 3-year dollar swap 11.25 -0.25
spread
U.S. 5-year dollar swap 7.75 -0.75
spread
U.S. 10-year dollar swap -4.25 -0.50
spread
U.S. 30-year dollar swap -31.75 0.25
spread (Reporting by Herbert Lash; additional reporting by Saqib Ahmed
in New York, Editing by Barbara Lewis and Andrea Ricci)
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