(Recasts, updates yields)
By Karen Pierog
CHICAGO, Aug 12 (Reuters) - U.S. Treasury yields on the
longer end of the curve hovered near the unchanged mark on
Thursday after struggling to maintain higher levels reached in
the wake of a 30-year bond auction, while cash flowing into to
an overnight Federal Reserve facility set a new record.
The 30-year yield, which hit a session high of
2.035% following the early-afternoon auction, was last at
2.0048%.
The benchmark 10-year yield rose as high as
1.379% after the auction and was last at 1.3607%.
The $27 billion of 30-year bonds were sold at a high yield
of 2.040% and with a bid-to-cover ratio, a gauge of demand, of
2.21.
"You had a really pretty normal result relative to average
so I think the market looked through the auction results and
just kind of kept on doing what it was doing," said Tom Simons,
a money market economist at Jefferies in New York. He added that
a really weak or really strong auction would have had the
potential to move rates more.
Yields, meanwhile, continued to inch higher ahead of an
expected announcement by the Fed on tapering its asset purchases
and with the latest inflation readings, Simons said.
U.S. producer prices increased more than expected in July,
suggesting inflation could remain high as strong demand fueled
by the economic recovery from the coronavirus pandemic continues
to press supply chains.
The producer price report on Thursday from the Labor
Department followed data on Wednesday that showed U.S. consumer
price increases slowed in July even as they remained at a
13-year high on a yearly basis amid tentative signs inflation
has peaked as supply-chain disruptions caused by the pandemic
work their way through the economy.
Inflation expectations have risen this week, with the
breakeven inflation rate on five-year U.S. Treasury
Inflation-Protected Securities (TIPS) climbing as
high as 2.616% on Thursday. It was 2.552% on Monday.
The Labor Department also reported on Thursday that initial
claims for state unemployment benefits fell 12,000 to a
seasonally adjusted 375,000 for the week ended Aug. 7.
"It's the third decline in a row, so that's giving people
more optimism that the next jobs figures will be reasonably
strong," said Kathy Jones, chief fixed income strategist at the
Schwab Center for Financial Research in New York.
The U.S. Treasury also announced auctions for $27 billion of
20-year bonds next Wednesday and $8 billion of 30-year TIPS on
Aug. 19.
Auctions earlier this week were solid, with Wednesday's
10-year note auction the strongest since 2012, possibly as a
result of foreign demand, Citi analysts said in a research
report.
The amount of cash pouring into the Fed's overnight reverse
repurchase agreement facility set a record high of $1.087
trillion on Thursday, topping the previous record of $1.039
trillion set on July 30.
A closely watched part of the yield curve that measures the
gap between yields on two- and 10-year Treasury notes
was last 2.29 basis points steeper at 113.60 basis
points.
August 12 Thursday 3:42PM New York / 1942 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 0.05 0.0507 0.000
Six-month bills 0.05 0.0507 -0.002
Two-year note 99-207/256 0.2227 0.002
Three-year note 99-194/256 0.4565 0.005
Five-year note 99-8/256 0.8245 0.013
Seven-year note 99-32/256 1.131 0.012
10-year note 98-248/256 1.3607 0.002
20-year bond 105-136/256 1.9124 0.004
30-year bond 108-68/256 2.0048 0.001
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 9.00 0.50
spread
U.S. 3-year dollar swap 9.75 0.75
spread
U.S. 5-year dollar swap 8.50 0.00
spread
U.S. 10-year dollar swap 0.25 -0.75
spread
U.S. 30-year dollar swap -29.25 0.50
spread (Reporting by Karen Pierog; editing by Jonathan Oatis and Chizu
Nomiyama)
