Treasury long-dated yields advance

01 Feb, 2018

US Treasury long-dated yields rose on Tuesday ahead of a slew of events this week such as a Federal Reserve monetary policy decision which could help shed more light on the outlook for interest rates this year. Benchmark US 10-year yields, which move inversely to prices, touched their highest in nearly four years, while 30-year yields climbed to their highest since May 2017.
Gennadiy Goldberg, interest rates strategist at TD Securities in New York, said investors were spooked by declines on Wall Street overnight and on Tuesday, prompting a flight to the safety of US government bonds in early trade. But then Treasuries prices fell as investors positioned for President Donald Trump's first State of the Union address to Congress later on Tuesday, the Fed statement on Wednesday, and the impending US non-farm payrolls report for January.
Trump was expected to take credit for US economic gains and benefits from a tax overhaul approved by the Republican-controlled Congress in December. The Fed will also be a big focus this week, with analysts expecting it to hold rates steady, but strike a hawkish tone in its statement.
The US central bank on Tuesday kicked off its two-day meeting, Fed Chairperson Janet Yellen's last after four years in office. Fed Governor Jerome Powell will take over next month. "There is widespread risk for more upbeat assessments of growth and inflation (from the Fed), especially now that tax reform is in place," Action Economics wrote on its blog.
Fed funds futures have priced in a 90 percent chance the Fed will raise rates in March, a 65 percent probability of another hike in June, and a more than 50 percent chance of further tightening in December. In late trading, US 10-year yields edged up to 2.727 percent, from Monday's 2.699 percent. Overnight, 10-year yields hit 2.733 percent, the highest since April 2014.
US 30-year bond yields also rose to 2.973 percent, up from 2.943 percent late Monday. The yield on this maturity touched an 8-1/2-month peak of 2.989 percent earlier in the session. The yield curve has steepened on Tuesday, with the spread between five-year and 30-year yields widening to 47.40 basis points. The gap between US 2-year and 10-year yields rose to 60.10 basis points, the widest in three weeks. TD's Goldberg said Tuesday's steepening was just a reversal of a generally flattening trend in the last couple of weeks, with investors taking profits on those trades.

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