(Adds quote, updates prices)
By Karen Brettell
NEW YORK, July 13 (Reuters) - The U.S. Treasury yield curve
flattened on Tuesday after data showed that consumer prices rose
more than expected in June, raising fears that rising price
pressures may lead the Fed to tighten policy sooner than
expected.
U.S. consumer prices rose by the most in 13 years in June
amid supply constraints and a continued rebound in the costs of
travel-related services from pandemic-depressed levels as the
economic recovery gathered momentum.
The consumer price index increased 0.9% last month, the
largest gain since June 2008, after advancing 0.6% in May. The
so-called core CPI surged 4.5% on a year-on-year basis, the
largest increase since November 1991, after rising 3.8% in May.
"Yet another blowout inflation reading makes it increasingly
difficult for the Fed to stick to its position that elevated
inflation readings are merely 'transitory'," James Knightley,
chief international economist at ING, said in a report.
Benchmark 10-year yields jumped to 1.390% on the
data, before falling back to 1.349%. Two-year yields,
which are highly sensitive to interest rate expectations,
increased to 0.251%, from 0.228%.
The yield curve between two-year and 10-year notes
flattened to 110 basis points.
Fed Chair Jerome Powell is likely to be asked about the data
when he testifies before Congress on Wednesday and Thursday and
his comments will be evaluated for any indications that he is
becoming more concerned about rising price pressures.
"There is certainly some concern that some of these price
increases are coming in much quicker than expected, but you can
argue that a lot of this is due to the recovery," said Gennadiy
Goldberg, an interest rate strategist at TD Securities in New
York.
Minutes from the Fed's June policy meeting released last
week showed that Fed officials last month felt substantial
further progress on the U.S. economic recovery "was generally
seen as not having yet been met," but agreed they should be
poised to act if inflation or other risks materialized.
Fed funds futures are pricing in a 90% chance of an interest
rate hike in Dec. 2022 and a 100% chance of a hike in Jan. 2023.
The Treasury will sell $24 billion in 30-year bonds on
Tuesday, the final sale of $120 billion in coupon-bearing supply
this week.
July 13 Tuesday 9:57AM New York / 1357 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 0.05 0.0507 0.000
Six-month bills 0.0525 0.0532 0.002
Two-year note 99-193/256 0.2508 0.018
Three-year note 99-192/256 0.459 0.029
Five-year note 100-74/256 0.8154 0.019
Seven-year note 100-232/256 1.1143 -0.002
10-year note 102-136/256 1.3493 -0.014
20-year bond 105-236/256 1.8905 -0.026
30-year bond 109-56/256 1.9651 -0.028
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 7.50 0.25
spread
U.S. 3-year dollar swap 9.50 -2.00
spread
U.S. 5-year dollar swap 7.50 -0.50
spread
U.S. 10-year dollar swap -1.00 -0.25
spread
U.S. 30-year dollar swap -27.25 0.25
spread (Reporting by Karen Brettell; Editing by Andrea Ricci)
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