US yields mostly down with market in consolidation phase

NEW YORK: US Treasury yields were mostly lower on Wednesday in generally quiet trading, with the market in a period of consolidation following a heavy stretch in the last few weeks that saw yields on benchmark 10-year notes hit their highest in about 14 months.

Yields on the front end to the so-called belly of the curve were down, while those on the very long end were firmer. US 10-year yields, however, dropped to a two-week low.

"The conviction for today is more limited and more akin to a period of consolidation around the current levels and trading volumes are muted," said Ben Jeffery, rates strategist, at BMO Capital Markets in New York.

In mid-morning trading, the US 10-year Treasury yield was little changed at 1.656%, from 1.657% on Tuesday.

US 30-year yields were up a bit at 2.33%, from Tuesday's 2.316%.

US 5-year note yields continued their descent, at 0.857% , from Wednesday's 0.872%.

Movements in 5-year notes reflect interest rate expectations, analysts said. Recent declines in the 5-year yield suggested that investors are not really buying aggressive pricing in the futures market of the first hike from the Federal Reserve.

On the short end of the curve, US 2-year yields slipped to 0.154%, from 0.161% on Monday.

For a third straight session, the yield curve flattened on Wednesday, with the spread between US 2-year and 10-year yields slid to 150.10 basis points.

The Fed is also scheduled to release later on Wednesday the minutes of its last policy meeting in March, though analysts do not expect them to have a major impact on the market.

"I don't think we'll see much change in the Fed's tone. They will probably still sound dovish," said Gennadiy Goldberg, senior rates strategist, at TD Securities. "One thing I will be looking at would be clarification on what constitutes 'sufficient further progress' as stated by the Fed."

At the March meeting, the Fed projected that the US economy will grow at 6.5% clip this year, benefitting from the massive fiscal stimulus and expected success of the COVID vaccines.

Eurodollar futures, which track interest rate expectations, have come off a bit in terms of pricing the first Fed rate hike. On Wednesday, the futures market has priced a full Fed tightening in March 2023, after showing a full hike by December 2020 the last few days.