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TREASURIES-Yields rise as inflation data, auctions eyed as next catalysts

·4 min read

(Updates prices; adds Kaplan, Daly comments) By Chuck Mikolajczak NEW YORK, May 10 (Reuters) - Longer-dated U.S. Treasury yields rose on Monday, reversing course in the session, as investors awaited data later this week on inflation and auctions that will bring a burst of supply to the market. Yields were whipsawed on Friday in the aftermath of much weaker-than-anticipated April jobs numbers, which showed nonfarm payrolls increased by only 266,000, well below the 770,000 reported for March and the 916,000 estimate. With investors closely watching for signs of higher prices, the Wednesday consumer price index release for April will be monitored as investors gauge if the U.S. Federal Reserve will begin to alter its stance on inflation. The central bank has repeatedly said it views any inflation that occurs to be transitory. Chicago Federal Reserve President Charles Evans said on Monday that inflation rates of 2.5% would not be a concern if they lead to an average of 2% over time. "That is kind of what we are looking at right now, optically a big market-risk event that ended up not being all that significant in terms of where the Fed's future path is for policy," said Tom Simons, a money market economist at Jefferies in New York. "CPI could be kind of the same thing because the Fed has been talking about looking through near-term inflation pressure ... so we could be setting up for another inflation print that could come in higher than expected and immediately afterward the Fed dismisses it again and we are back to square one afterwards." The yield on 10-year Treasury notes was up 2.3 basis points at 1.602%. A jolt of supply is expected this week, with the U.S. Treasury auctioning $58 billion of three-year notes on Tuesday, $41 billion of 10-year notes on Wednesday, and $27 billion of 30-year bonds on Thursday. The yield on the 10-year was poised to rise on consecutive days for the first time since April 26-27. Some Fed officials also appeared to disagree on the central bank's bond-buying program. Dallas Federal Reserve Bank President Robert Kaplan said he would like to start discussions about reducing it, while San Francisco Federal Reserve Bank President Mary Daly said the Fed should not start thinking about tapering yet. A Federal Reserve Bank of New York survey released on Monday showed U.S. consumers expect higher housing and other costs in the near term as the economy bounces back from the coronavirus pandemic, but not a sustained climb. Some market participants have downplayed economic data, noting that year-over-year comparisons are extreme due to the severe economic shutdown that began in March 2020. Still, inflation expectations rose on Monday, with the breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) reaching 2.72%, its highest since April 2011, after closing at 2.681% on Friday. The 10-year TIPS breakeven rate also rebounded after closing at 2.503% on Friday. It was last at 2.54%, its highest since April 2013, indicating the market sees inflation averaging 2.5% a year for the next decade. May 10 Monday 3:09PM New York / 1909 GMT Price Current Net Yield % Change (bps) Three-month bills 0.0125 0.0127 -0.002 Six-month bills 0.035 0.0355 0.001 Two-year note 99-241/256 0.1548 0.010 Three-year note 100-58/256 0.2972 0.010 Five-year note 99-214/256 0.7837 0.013 Seven-year note 99-246/256 1.2559 0.020 10-year note 95-180/256 1.602 0.023 20-year bond 94-248/256 2.1899 0.029 30-year bond 90-136/256 2.317 0.040 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 9.75 -0.25 spread U.S. 3-year dollar swap 12.50 -0.50 spread U.S. 5-year dollar swap 8.25 -1.00 spread U.S. 10-year dollar swap -3.25 -1.00 spread U.S. 30-year dollar swap -29.75 -1.25 spread (Reporting by Chuck Mikolajczak Editing by Nick Zieminski and Richard Chang)