(Analyst comments, recasts, changes yields, adds reverse repo operation)
Karen Pierog contributed to this article.
Reuters, CHICAGO, June 30 – As the market closed out the second quarter of 2021, longer-dated U.S. Treasury yields fell to their lowest levels in more than a week, while the amount of cash flowing into the Federal Reserve’s reverse buyback operation hit a new high as it approached $1 trillion.
The benchmark 10-year yield, which had fallen to its lowest level since June 21 at 1.438 percent, was last trading at 1.4477 percent, down 3.2 basis points. The 30-year bond yield, which had hit a session low of 2.047 percent earlier in the day, was last at 2.0701 percent.
“I think a lot of it has to do with quarter end (portfolio rebalancing), maybe some duration needs related with the calendar switch (to July), and then a little bit of caution on Friday’s jobs statistics,” said Ben Jeffery, BMO Capital Markets’ U.S. rates strategist.
According to a Reuters poll of economists, the carefully awaited U.S. Labor Department data is likely to reveal that private payrolls and government hiring grew by 700,000 in June, after rising by 559,000 in May. The unemployment rate is expected to drop to 5.7 percent in June, down from 5.8 percent in May.
The ADP National Employment Report on Wednesday, released ahead of the government’s report, indicated that private payrolls climbed by 692,000 jobs last month, exceeding the 600,000 increase predicted by economists polled by Reuters. The data for May has been revised downwards to reflect Instead of the originally reported 978,000 jobs, 886,000 were added.
Despite the excellent jobs numbers, Kathy Jones, chief fixed income analyst at the Schwab Center for Financial Research in New York, believes that eased inflation fears kept rates from rising.
“You’d expect that a 700,000 nonfarm payroll statistic would drive people to start sending yields up,” she said, “because real yields are so low and even nominal yields relative to the growth rate in the economy that we’re aiming for are so low.”
While there may not be “explosive headline figures” in jobs statistics, the labor force continues to strengthen, according to Federal Reserve Bank of Dallas President Robert Kaplan.
He also asked for the Fed’s $120 billion in monthly asset purchases to be tapered sooner rather than later this year.
Meanwhile, volume in the Federal Reserve’s overnight reverse repurchase operation reached a new high of $992 billion for the second day in a row, up from $841.2 billion on Tuesday.
“I think some of what happened today to be tied to quarter and month ends, so we might see a short fall,” said John Canavan, chief economist at Oxford Economics.
“However, the trend continues to be increased demand, and I believe we will surpass $1 trillion in the not-too-distant future.”
While volume had been increasing since March, it increased even more after the Fed upped the amount it pays on reverse repurchase agreements from 0 percent to 0.05 percent earlier this month as part of technical changes to keep the effective federal funds rate from going too low.
The two-year Treasury yield was 0.2486 percent Friday night, down less than a basis point.
The spread between two-year and 10-year Treasury notes, which is a frequently studied component of the yield curve, was 2.5 basis points narrower last week, at 119.57 basis points.
Wednesday, June 30th, 3:11 p.m. Price Current Net Yield percent Change / New York / 1911 GMT Price Current Net Yield percent Change / New York / 1911 GMT (bps)
0.045 0.0456 -0.005 0.045 0.0456 -0.005 0.045 0.0456 -0.005 0.045 0.04
0.055 0.0558 0.000 0.055 0.0558 0.000 0.055 0.0558 0.000 0.055 0.0558
99-193/256 0.2486 -0.003 -0.003 -0.003 -0.003 -0.003 -0.003 -0.003 –
99-102/256 0.4551 -0.008 -0.008 -0.008 -0.008 -0.008 -0.008 -0.008 –
100 0.875 -0.016 -0.016 -0.016 -0.016 -0.016 -0.016 -0.0
100-56/256 1.2173 -0.027 -0.027 -0.027 -0.027 -0.027 -0.027 -0.027 -0.0
1.4477 -0.032 ten-year note 101-160/256 1.4477 -0.032 ten-year note 101-160/256 1.4477
104-20/256 104-20/256 104-20/256 104-20/256 104-20/256 2.0002 -0.030 0.0002 -0.030 0.0002 -0.030
Bond number 106-196/256 is a 30-year bond. 2.0701 -0.027; 2.0701 -0.027; 2.0701 –
SWAP DOLLAR SPREADS
Last Net Change (bps) (bps)
7.75 0.00 spread on a two-year dollar swap in the United States
10.75 0.00 spread on a three-year dollar swap in the United States
7.00 0.00 spread on a 5-year dollar swap in the United States
-2.75 0.00 spread on a 10-year dollar swap in the United States
-31.50 -0.25 spread on a 30-year dollar swap in the United States (Karen Pierog contributed reporting; Nick Zieminski and Jonathan Oatis edited the piece.)/n
