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(New throughout, updates yields; adds comments from Biden, Fed
official and analyst)
By Karen Pierog
CHICAGO, Jan 8 (Reuters) - U.S. Treasury yields on the
longer end of a steepening curve rose on Friday after a plunge
in payrolls last month raised the prospect of more federal
spending to aid the coronavirus-battered economy.
The benchmark 10-year yield, which climbed as high
as 1.125% for the first time since March, was last up 4.4 basis
points at 1.1153% and the yield curve steepened.
Nonfarm payrolls decreased by 140,000 jobs last month amid
growing COVID-19 cases, marking the first decline since April,
the U.S. Labor Department said on Friday. The unemployment rate
was at 6.7%.
The further jump in yields came as stocks eked out new
record highs, highlighting the risk-on sentiment that has sucked
money out of bonds in anticipation of yet-higher yields.
“The market is going to look at (the report) and say there’s
going to be more fiscal stimulus," said Steven Ricchiuto, U.S.
chief economist at Mizuho Securities USA LLC in New York.
"You’re going to have the 10-year Treasury note push up to
higher yields."
Longer-term yields have been climbing all week as Democrats
won narrow control of the U.S. Senate as a result of Georgia
runoff elections, raising expectations that a
Democrat-controlled Congress and White House will seek further
stimulus spending financed with more Treasury debt.
Citing the jobs report, President-elect Joe Biden called for
more immediate relief, including direct stimulus checks, saying
that taking action now will help the economy even with deficit
financing.
Tom di Galoma, a managing director at Seaport Global
Holdings in New York, said the market was also focused on supply
in credit and Treasury markets.
"January is supposed to be a fairly decent month for a lot
of new issues coming all over the globe and that's going to
weigh on Treasury yields and Treasury yields are going to go
higher," he said.
More Treasury supply is on its way in auctions next week. A
record $58 billion of three-year notes will be offered on
Monday, followed by $38 billion of 10-year notes on Tuesday and
$24 billion of 30-year bonds on Wednesday.
Higher yields should bring in buyers, according to Jim
Vogel, senior rates strategist at FHN Financial in Memphis,
Tennessee.
"Unlike other periods where we have sharply higher rates,
there's still an awful lot of cash that many investors have been
waiting to put into the market based on the idea that 2021 would
bring higher yields. Now here they are," he said.
The market was also weighing comments this week by U.S.
Federal Reserve officials regarding the central bank's bond
buying program.
Fed Vice Chair Richard Clarida said on Friday that any
changes are "well down the road," and that he expects the
current pace of bond purchases to remain in place at least
through this year.
The most watched part of the yield curve, which measures the
gap between yields on two- and 10-year Treasury notes
, reached its widest level since May 2017 at 98.49
basis points. It was last 3.6 basis points higher at 97.47 basis
points.
The two-year U.S. Treasury yield, which typically
moves in step with interest rate expectations, was last
unchanged at 0.1389%.
January 8 Friday 2:37PM New York / 2137 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 0.085 0.0862 0.000
Six-month bills 0.09 0.0913 0.000
Two-year note 99-249/256 0.1389 0.000
Three-year note 99-182/256 0.2242 0.013
Five-year note 99-118/256 0.4849 0.031
Seven-year note 98-188/256 0.8121 0.042
10-year note 97-196/256 1.1153 0.044
20-year bond 95-20/256 1.6673 0.033
30-year bond 94-100/256 1.8711 0.026
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 7.75 1.00
spread
U.S. 3-year dollar swap 7.00 0.50
spread
U.S. 5-year dollar swap 7.00 0.50
spread
U.S. 10-year dollar swap 0.75 1.50
spread
U.S. 30-year dollar swap -26.25 1.50
spread (By Karen Pierog, additional reporting by Herbert Lash, Editing
by Nick Zieminski and David Gregorio)
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