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TREASURIES-Yields jump as Powell boosts inflation expectations, and on Biden stimulus plans

Herbert Lash
·3 min read

(Adds comments from Fed Chair Powell) By Herbert Lash NEW YORK, Jan 14 (Reuters) - Treasury yields rose on Thursday after dovish comments from Federal Reserve Chairman Jerome Powell boosted expectations for a jump in inflation, and before President-elect Joe Biden was to announce details of a new stimulus package. Powell said in a web symposium with Princeton University that a lesson from the financial crisis a decade ago is not to exit a bond-buying program too early, indicating the Fed was not close to stopping its $120 billion-a-month purchases of bonds. He added that an interest rate increase would come "no time soon" given the depth of the economic problems related to the still-raging coronavirus crisis. The dovish comments reinforced expectations that the Fed will allow inflation to rise above the Fed's target of 2% for longer before raising rates. Yields on the 10-year Treasury note rose as high as 1.138%, up from an earlier low of 1.075%. Inflation expectations also increased, with 10-year TIPS now pricing in average annual inflation of 2.09% for the next decade, up from 2.06% before Powell's comments. Powell was adamant about his policies without any hesitation or showing any concern about inflation, said Lou Brien, market strategist at DRW Trading in Chicago. Other Fed officials this week also have pushed back at speculation that they are close to curbing the U.S. central bank's monthly bond purchases or raising short-term rates. Yields hit session highs on Thursday afternoon after a report that President-elect Joe Biden will unveil a stimulus proposal with around $1.9 trillion in aid later on Thursday. Yields briefly dipped earlier on Thursday after the number of Americans filing first-time applications for unemployment benefits surged last week, the Labor Department said in a report that confirmed the labor market was weakening as a surge in COVID-19 cases disrupts businesses. Initial claims for state unemployment benefits increased 181,000 to a seasonally adjusted 965,000 for the week ended Jan. 9, the highest since late August. Economists polled by Reuters had forecast 795,000 applications for the latest week. A swift market sell-off last week pushed yields on 10-year Treasuries to highs last seen in March. Strong demand for the Treasury Department's auctions of 10-year and 30-year debt this week helped stem the sell-off and pull yields lower. The yield curve between two-year and 10-year notes steepened to 97.90 basis points. Thirty-year bond yields traded at 1.869%, up from earlier lows of 1.806%. Five-year note yields edged up to 0.480%. January 14 Thursday 4:03PM New York / 2103 GMT Price Current Net Yield % Change (bps) Three-month bills 0.08 0.0811 -0.005 Six-month bills 0.09 0.0913 -0.003 Two-year note 99-246/256 0.145 -0.002 Three-year note 99-180/256 0.2244 0.000 Five-year note 99-124/256 0.4803 0.006 Seven-year note 98-188/256 0.8124 0.021 10-year note 97-172/256 1.1258 0.038 20-year bond 95 1.6722 0.050 30-year bond 94-112/256 1.8691 0.051 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 6.50 -0.50 spread U.S. 3-year dollar swap 5.75 -0.25 spread U.S. 5-year dollar swap 6.75 -0.25 spread U.S. 10-year dollar swap 0.25 -0.50 spread U.S. 30-year dollar swap -25.25 -0.75 spread (Reporting by Herbert Lash Editing by Paul Simao and Jonathan Oatis)