(Recasts, adds three-year note auction results, analyst
comments, byline)
By Karen Brettell and Karen Pierog
April 12 (Reuters) - U.S. Treasury yields remained slightly
higher on Monday following a good three-year note auction and
ahead of a 10-year note offering later in the day as $120
billion in coupon supply hits the market this week, testing
investor appetite for debt.
The $58 billion of three-year notes were sold at a high
yield of 0.376% and with a bid-to-cover ratio, a gauge of
demand, of 2.32 times. Analysts said the results
were solid given the size and timing of the auction.
The three-year yield was last 2.2 basis points
higher at 0.3576%. The benchmark 10-year yield was
last up less than a basis point at 1.6728%, holding below a
14-month high of 1.776% reached on March 30.
Yields have dipped from one-year highs reached last month on
improving demand for the debt, though they remain elevated with
investors concerned that faster economic growth and rising price
pressures will continue to push yields higher.
Increasing supply as the government finances higher fiscal
spending and widening deficits is adding to the yield increases.
Coming up on Monday is a $38 billion auction of 10-year
notes, followed on Tuesday by a $24 billion offering of 30-year
bonds.
"I don't think that this is a month where we have
particularly high risk for the long-duration auctions," said Tom
Simons, a money market economist at Jefferies in New York.
Aside from the auctions, the market is also focused on key
data this week, including U.S. consumer price data for March due
out on Tuesday. Investors are betting that price pressures will
increase due to increased fiscal and monetary stimulus and as
businesses reopen from COVID-19 related closures.
Comparisons with last year are also likely to be strong, due
to a drop in inflation a year ago when businesses closed due to
COVID-19.
"This is the first month we're going to see the big base
effect pump up the year-over-year comparisons," said Simons.
Market participants are aware of the effect, however, and
the Federal Reserve has indicated it will look through any
temporary inflation, making it unlikely that a strong number
will create a hawkish response from the U.S. central bank.
"I don't think there is a real risk that the hiking timeline
is pulled forward or anything like that," Simons said.
Data on Friday showed that U.S. producer prices notched
their largest annual gain in 9-1/2 years last month.
Meanwhile, Federal Reserve Chair Jerome Powell, in a
television interview on Sunday, said the U.S. economy is at an
"inflection point" with expectations that growth and hiring will
pick up speed in the months ahead, but also with risks if a
hasty reopening leads to a continued increase in coronavirus
cases.
"I view that as a non-event because it's the same message
that has been promoted by the Fed for so long now," said Bill
Merz, head of fixed income research at U.S. Bank Wealth
Management in Minneapolis. "They've really been singing the same
tune since March and April last year."
The two-year Treasury yield, which typically
moves in step with interest rate expectations, was last up 1.4
basis points at 0.1708%.
A closely watched part of the yield curve, which measures
the gap between yields on two- and 10-year Treasury notes
, was less than a basis point steeper at 150.56
basis points.
April 12 Monday 12:20AM New York / 1620 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 0.015 0.0152 0.002
Six-month bills 0.035 0.0355 -0.002
Two-year note 99-233/256 0.1708 0.014
Three-year note 99-176/256 0.3576 0.022
Five-year note 99-84/256 0.8886 0.021
Seven-year note 99-100/256 1.3419 0.012
10-year note 95-12/256 1.6728 0.007
20-year bond 94-72/256 2.2333 0.010
30-year bond 90 2.3426 0.004
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 11.50 -0.75
spread
U.S. 3-year dollar swap 14.25 -0.75
spread
U.S. 5-year dollar swap 10.75 -0.50
spread
U.S. 10-year dollar swap 2.25 -0.25
spread
U.S. 30-year dollar swap -22.25 -0.25
spread (Reporting by Karen Brettell in New York and Karen Pierog in
Chicago; editing by Jonathan Oatis)
