Treasuries: Yields inch up slightly after First Republic asset sale

WASHINGTON: US Treasury yields opened higher on Monday after JPMorgan announced that it would buy most of First Republic Bank’s assets after regulators seized the troubled lender.

The two-year Treasury yield, which typically moves in step with interest rate expectations, rose 4.1 basis points to 4.105%. The yield on 10-year Treasury notes was up 2.6 basis points to 3.478%, while the yield on 30-year notes was up 4.6 basis points to 3.723%.

Ten-year yields have seen little in the way of significant shifts over the last several weeks, as the market has priced in a 25-basis point hike to come out of the US Federal Reserve’s next Federal Open Markets Committee meeting on Wednesday.

Monday morning’s upward tick in yields comes after news that the government had seized First Republic’s assets, most of which were in turn acquired by JPMorgan.

“What I would observe is that the short-term fluctuations are probably driven more by news around First Republic,” said Eric Winograd, senior US economist at money manager AllianceBernstein.

The latest in the banking sector’s turmoil, First Republic’s demise is likely to lead banks and other lenders to further tighten their credit standards, according to Winograd.

“That will do some of the Fed’s work for them, and so it mitigates the need for additional rate hikes,” Winograd said.

The gap between two- and 10-year Treasury yields - a closely watched indicator of economic expectations - was last at negative 62.8 basis points.

GDP figures last week showed slower economic growth than expected, while the personal consumption expenditure index rose from the previous quarter.

Several key economic indicators will be released this week, which will help show the Fed how much more work it needs to do in curbing persistent inflation.