Tuesday, May 17

Yields hit three-year highs, housing data in focus


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NEW YORK — US Treasury yields reached

three-year highs on Monday as investors adjusted for the Federal

Reserve to aggressively raise rates as it tries to stem soaring

inflation that is running at its fastest pace in 40 years.

Data last week showed that the consumer price index jumped

1.2% last month, the biggest monthly gain since September 2005.

In the 12 months through March, the CPI accelerated 8.5%, the

largest year-on-year gain since December 1981.

The Fed is now expected to hike rates by 50 basis points at

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its May and June meetings, at least. Fed funds futures traders

are expecting the Fed’s benchmark rate to rise to 1.28% in June

and to 2.67% next February, from 0.33% now.

Housing data will be in focus this week for signs on whether

a rapid jump in mortgage interest rates is beginning to dent

demand, with houses already having become less affordable due to

soaring prices.

“We’re probably going to start to see the beginning of some

demand destruction in the housing market because of the rise in

mortgage interest rates,” said Thomas Simons, a money market

economist at Jefferies in New York.

“I don’t think it’s enough to really spook the Fed away from

their pretty aggressive take on how to address inflation,”

Simons said, however, “it will probably start to give those

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folks who are talking about a recession in a near-term time

horizon, it’ll give them a little more ammunition for the

argument and could lead to yields leveling out.”

Housing data this week will include home builder sentiment

on Monday, housing starts on Tuesday and existing home sales on

Wednesday.

Thirty-year mortgage rates have jumped to 5.13%, from 3.33%

at the end of December.

Concerns that the Fed will dent growth with its aggressive

tightening increased after the yield curve between two-year and

10-year notes inverted last month, which has historically been a

reliable indicator that a recession will follow in

one-two-years.

That part of the yield curve steepened back to

36 basis points on Monday, after inverting by as far as 10 basis

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points on April 4. Benchmark 10-year yields were

last 2.820%, after reaching 2.884% earlier on Monday, the

highest since Dec. 2018.

Some of the move higher in yields on Monday was also seen as

due to relatively light trading volumes with London closed for

the Easter Monday holiday.

April 18 Monday 9:38AM New York / 1338 GMT

Price Current Net

Yield % Change

(bps)

Three-month bills 0.765 0.777 -0.010

Six-month bills 1.215 1.2393 0.025

Two-year note 99-156/256 2.4562 0.012

Three-year note 99-222/256 2.6715 0.006

Five-year note 98-200/256 2.7651 0.005

Seven-year note 97-52/256 2.821 0.005

10-year note 91-240/256 2.82 0.012

20-year bond 89-96/256 3.096 0.005

30-year bond 86-220/256 2.9122 -0.005

DOLLAR SWAP SPREADS

Last (bps) Net

Change

(bps)

US 2-year dollar swap 25.00 -0.50

spread

US 3-year dollar swap 13.00 -0.75

spread

US 5-year dollar swap 4.75 0.00

spread

US 10-year dollar swap 4.50 0.25

spread

US 30-year dollar swap -20.50 0.00

spread

(Editing by Alison Williams)

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