(Adds comments from Fed's Powell and Evans, adds quote, updates
prices)
By Karen Brettell
NEW YORK, July 15 (Reuters) - U.S. Treasury yields fell to
one-week lows on Thursday as Federal Reserve Chairman Jerome
Powell testified before Congress for the second day that rising
inflation is likely to be transitory and that the U.S. central
bank would continue to support the economy.
Powell delivered the same pledge of "powerful support" to
complete the U.S. economic recovery as he did on Wednesday, an
indication he sees no need to rush the withdrawal of support
from the economy because of a recent jump in inflation.
"He continues to lean a bit more dovishly than what we saw
after the June FOMC meeting via the dot plot," said Ian Lyngen,
head of U.S. rates strategy at BMO Capital Markets in New York.
"That doesn't mean that tapering still isn't on track, and
it doesn't mean that we won't see some shift in monetary policy
in 2022 and 2023 in terms of the liftoff rate hike. Rather, that
Powell has been pushing back on this notion that there's some
high degree of urgency to start normalizing rates this year,"
Lyngen said.
Benchmark 10-year yields fell six basis points
on Thursday to 1.297%. The yield curve between two-year and
10-year notes flattened five basis points to 107
basis points.
The Fed surprised markets after its June meeting showed that
U.S. central bank officials moved their first projected rate
increases from 2024 into 2023, with 13 of 18 policymakers
foreseeing a "liftoff" in borrowing costs by that year and 11
seeing two quarter-percentage-point rate increases.
Long-dated yields have fallen in the past few weeks and the
yield curve has flattened as investors prepare for the economic
boom from business reopenings to fade, and on concerns that
eventually Fed tightening will dampen inflation and slow growth.
The market has been choppy at times, however, and market
participants say that moves are being influenced by investors
positioning for higher rates having to cover those positions
when they move against them.
"It's showing us that perhaps positioning is still leaning
heavily towards higher rates," said Michael Lorizio, senior
fixed income trader at Manulife Investment Management in Boston.
"There's still I'd say, on balance, investors who are
underweight their usual duration benchmarks, which is part of
the explanation for the price action, which doesn't really make
much sense."
Chicago Federal Reserve President Charles Evans also said on
Thursday said he's still digesting what the recent leap in
inflation means for the appropriate timing of interest rate
increases, but signaled he still sees liftoff as years away.
Data on Thursday showed that the number of Americans filing
new claims for unemployment benefits fell to a 16-month low last
week as the labor market gains traction, but worker shortages
and bottlenecks in the supply chain are frustrating efforts by
businesses to ramp up production to meet strong demand for goods
and services.
The next major U.S. economic release will be retail sales
data for June on Friday.
July 15 Thursday 3:00PM New York / 1900 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 0.0475 0.0482 -0.003
Six-month bills 0.05 0.0507 0.000
Two-year note 99-206/256 0.2251 -0.004
Three-year note 99-212/256 0.4328 -0.005
Five-year note 100-124/256 0.7752 -0.024
Seven-year note 101-56/256 1.0677 -0.039
10-year note 103-4/256 1.2972 -0.059
20-year bond 106-180/256 1.8448 -0.066
30-year bond 110-72/256 1.9206 -0.068
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 7.75 0.00
spread
U.S. 3-year dollar swap 9.50 -0.25
spread
U.S. 5-year dollar swap 7.75 -0.50
spread
U.S. 10-year dollar swap -1.50 -0.75
spread
U.S. 30-year dollar swap -29.50 -2.00
spread (Reporting by Karen Brettell; Editing by Andrea Ricci and Nick
Zieminski)
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