(Adds quotes, data outlook, updates prices)
By Karen Brettell
NEW YORK, April 29 (Reuters) - U.S Treasury yields hit
two-week highs on Thursday after President Joe Biden proposed
trillions of dollars in new spending, and as data showed
American economic growth accelerated in the first quarter.
Biden late on Wednesday proposed spending $1.8 trillion on
education and childcare, which would be financed by raising the
top marginal tax rate for the wealthiest Americans.
That is on top of a $2 trillion jobs-and-infrastructure plan
to be paid for by raising taxes on U.S. companies.
Market participants are concerned that Treasury issuance
will need to increase to pay for the spending.
"There's certainly quite a bit of uncertainty about how much
of it will be offset through tax increases ... and how much will
rates have to rise to kind of pencil in this increase in
supply," said Gennadiy Goldberg, an interest rate strategist at
TD Securities in New York.
Yields also rose after the Commerce Department said gross
domestic product increased at a 6.4% annualized rate last
quarter.
Benchmark 10-year note yields reached 1.690%,
the highest since April 13, before fading back to 1.640%, up two
basis points on the day. They have risen from 1.531% last week
but are holding below one-year highs of 1.776% reached in March.
Inflation expectations hit eight-year highs of 2.46%, before
falling back to 2.43%, based on breakeven rates on 10-year
Treasury Inflation-Protected Securities (TIPS).
Yields tumbled on Wednesday after Federal Reserve Chairman
Jerome Powell said at the conclusion of the Fed's two-day
meeting that it was too soon to talk about tapering bond
purchases because the economy is still far away from meeting the
U.S. central bank's employment and inflation goals.
Lou Brien, a market strategist at DRW Trading in Chicago,
said its puzzling that yields aren't higher given the ongoing
bond purchases.
"Every time they've done QE the yield has gone up not down,
because of the possibility that they will encourage inflation,"
Brien said. "I still look at the bond and say why aren't they
higher in yields."
Some analysts say the Fed may begin hinting toward a taper
announcement in the coming months, with a reduction in bond
purchases possible by year-end.
Others think, however, that any tightening could take longer
as it will be difficult to predict how the economy will look
later in the year.
Data on Friday will give fresh information on personal
consumption expenditures (PCE) in March. It will be followed
next week by April's highly anticipated jobs report.
One-year Treasury bill yields also fell to record lows after
the Fed kept the interest rate it pays on excess reserves (IOER)
and reverse repos unchanged. The bill yields dropped
as low as 0.0507% on Thursday.
Money markets are struggling with a strong demand for
short-term assets and dwindling supply as the Treasury
Department cuts bill issuance and reduces its cash balance.
The cost to borrow Treasuries overnight in the repurchase
agreement market rose to three basis points, after
earlier dropping to zero.
April 29 Thursday 3:06PM New York / 1906 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 0.0125 0.0127 -0.005
Six-month bills 0.03 0.0304 -0.005
Two-year note 99-235/256 0.1661 0.000
Three-year note 100-26/256 0.3405 0.002
Five-year note 99-112/256 0.8652 0.000
Seven-year note 99-128/256 1.325 0.012
10-year note 95-92/256 1.6397 0.020
20-year bond 94-232/256 2.1935 0.009
30-year bond 90-172/256 2.3097 0.010
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 11.50 0.25
spread
U.S. 3-year dollar swap 14.00 0.00
spread
U.S. 5-year dollar swap 8.75 0.25
spread
U.S. 10-year dollar swap -0.25 0.25
spread
U.S. 30-year dollar swap -26.00 0.75
spread (Reporting by Karen Brettell; editing by Jonathan Oatis and
Nick Zieminski)
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