NEW YORK — Treasury yields fell on
Tuesday as speculation mounted again the Federal Reserve might
signal a slower pace of policy tightening this week, even as it
is expected to raise interest rates by another 75 basis points
(bps) in its battle against inflation.
The yield on benchmark 10-year Treasury note fell below the
key 4% threshold, while two-year yields slid almost 10 bps at
one point, as the market once again took comfort from signs of a
slowing economy and hopes inflation has peaked.
“The market is expecting that we’re getting closer and
closer to the Fed doing a pivot here. Probably not tomorrow, but
the market now is starting to question whether they need to go
75 bps in the month of December,” said Stan Shipley, managing
director and strategist at Evercore ISI in New York.
The yield on 10-year notes fell 5 bps to 4.027%,
while the two-year yield, which typically moves in
step with rate expectations, was unchanged at 4.501%. The
two-year yield briefly turned positive.
The yield spread between two- and 10-year notes
, seen as a recession harbinger when the short end
is higher than the long end, widened to -47.6 bps.
The issue for the Fed is that the core consumer price index
(CPI) remains sticky and above its 2% target, said George
Goncalves, head of U.S. macro strategy at MUFG Securities
Americas, in a note.
In the 12 months through September core CPI was 6.6%, higher
than the August reading of 6.3% on an annual basis.
Even when pivots occur, the damage may already been done,
Goncalves said. “With high inflation it’s not as if they will
start loosening policy that soon afterwards,” he said.
Fed funds futures are pricing in a 98.4% likelihood that the
Fed will boost rates by 75 bps on Wednesday. The market has also
raised its outlook for the Fed’s target rate to peak at 4.96% in
May 2023 – counter to hopes for easing.
Thirty-year Treasury bond yields fell 9.3 bps to
The breakeven rate on five-year U.S. Treasury
Inflation-Protected Securities (TIPS) was last at
The 10-year TIPS breakeven rate was last at
2.53%, indicating the market sees inflation averaging a bit more
than 2.5% a year for the next decade.
The U.S. dollar 5 years forward inflation-linked swap
, seen by some as a better gauge of inflation
expectations due to possible distortions caused by the Fed’s
quantitative easing, was last at 2.585%.
Nov. 1 Tuesday 10:33 AM New York / 1433 GMT
Price Current Net
Yield % Change
Three-month bills 4.06 4.1595 0.003
Six-month bills 4.44 4.605 0.000
Two-year note 99-195/256 4.5011 0.000
Three-year note 99-122/256 4.4405 -0.015
Five-year note 99-154/256 4.2142 -0.035
Seven-year note 99-64/256 4.1245 -0.038
10-year note 89-192/256 4.0274 -0.050
20-year bond 87-8/256 4.3597 -0.088
30-year bond 80-248/256 4.114 -0.092
DOLLAR SWAP SPREADS
Last (bps) Net
U.S. 2-year dollar swap spread 36.25 0.00
U.S. 3-year dollar swap spread 14.50 0.50
U.S. 5-year dollar swap spread 7.25 0.50
U.S. 10-year dollar swap spread 4.50 0.50
U.S. 30-year dollar swap spread -45.50 1.00
(Reporting by Herbert Lash
Editing by Mark Potter)