TREASURIES-Yields march higher, 30-year yields hit 3%
(Adds comments from Fed's Evans, auction outlook; updates prices) By Karen Brettell NEW YORK, April 19 (Reuters) - U.S. Treasury yields continued to march to three-year highs on Tuesday and 30-year yields tapped the 3% level as investors prepared for the Federal Reserve to aggressively raise rates as it tries to stem soaring inflation. St. Louis Federal Reserve Bank President James Bullard on Monday repeated his case for increasing interest rates to 3.5% by the end of the year to slow what are now 40-year-high inflation readings, saying that U.S. inflation is "far too high." Data last week showed that the consumer price index jumped 1.2% last month, the biggest monthly gain since September 2005. In the 12 months through March, the CPI accelerated 8.5%, the largest year-on-year gain since December 1981. Many investors have so far been reluctant to step in and buy bonds as yields grind higher, and may remain cautious at least until the Fed's May 3-4 meeting, when the U.S. central bank is expected to hike rates by 50 basis points and announce plans to reduce its $8.9 trillion balance sheet. "At this point the dip buyers are going to remain largely sidelined until we get through the Fed and we absorb the May refunding auctions," said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets in New York. "There's really not much to stand in the way of 10-year yields reaching 3%." Fed funds futures traders are expecting the Fed's benchmark rate to rise to 1.31% in June, and to 2.76% next February, from 0.33% now. The Treasury will announce details on its refunding plans for the second quarter on May 2 and May 4. Chicago Fed President Charles Evans on Tuesday said the Fed could raise its policy target range to 2.25%-2.5% by year end and then take stock of the state of the economy, but if inflation remains high will likely need to hike rates further. Benchmark 10-year note yields rose to 2.930%, the highest since December 2018. Thirty-year yields reached 3.018%, the highest since March 2019. Yields on 10-year Treasury Inflation-Protected Securities (TIPS) also approached positive territory, and last traded at minus 2 basis points. A positive TIPS yield would mean that an investor would break even on the notes in 10 years, after accounting for expected inflation. Demand for longer-dated and inflation-linked debt will be tested this week when the Treasury Department on Wednesday sells $16 billion in 20-year bonds and on Thursday sells 20 billion in five-year TIPS. Data on Tuesday showed that U.S. homebuilding unexpectedly rose in March, but starts for single-family housing tumbled amid rising mortgage rates. April 19 Tuesday 3:07PM New York / 1907 GMT Price Current Net Yield % Change (bps) Three-month bills 0.8425 0.856 -0.010 Six-month bills 1.2625 1.2883 0.015 Two-year note 99-96/256 2.5811 0.121 Three-year note 99-128/256 2.8006 0.116 Five-year note 98-54/256 2.8907 0.095 Seven-year note 96-132/256 2.933 0.071 10-year note 91-48/256 2.9129 0.051 20-year bond 88-64/256 3.1783 0.039 30-year bond 85-128/256 2.9879 0.035 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 24.75 -1.00 spread U.S. 3-year dollar swap 14.25 0.50 spread U.S. 5-year dollar swap 6.00 1.00 spread U.S. 10-year dollar swap 5.75 1.50 spread U.S. 30-year dollar swap -20.50 1.75 spread (Reporting by Karen Brettell; Editing by Will Dunham)
