Treasury Yields Try to Find Their Footing

    • Higher than expected UK inflation initially pushed Treasury yields higher in overnight trading, retesting some of the highs from early trading yesterday, but buyers stepped in and with the rebound in prices late yesterday it seems that the selling wave may have reached its limits, at least for now. Currently, the 10yr is at 3.68% while the 2yr is yielding 4.30%.


    • Talks on the debt ceiling are expected to resume today, with both sides indicating a willingness to negotiate but to date the parties seem as far apart as a week ago. Yellen continues to be adamant that Treasury will not be able to make it to June 15, when corporate tax payments arrive providing the funds to get to July. Some in the Republican Freedom Caucus have questioned whether the cash is as tight as Yellen is implying and so that sort of tells you where things stand at the moment. Any deal still looks likely to be an 11th hour affair around June 1.  One back-up option that may get more discussion is to suspend the debt-ceiling for some period of time while negotiations continue. In any event, it looks like equities will be in for more nervous trading in the week ahead.


    • The minutes from the May FOMC meeting will be released at 2pm ET and will be viewed for any hints as to the leanings around a pause at the upcoming June meeting. The fact that the May meeting came before the April jobs and CPI reports make them a little dated, nevertheless, discussions around credit tightening coming on the heels of the bank turmoil will also be of interest. The Senior Loan Officer Opinion Survey also came out after the meeting and it did show additional tightening in credit standards but the tightening was in line with what has been reported since last September. Demand for credit, however, fell off quite a bit.


    • The Treasury sold $42 billion in 2yr notes yesterday in a well-received auction which was being watched for how well it would go in light of the recent selling pressure. Indirect bidders really stepped up their purchases which implies foreign buyers are back after taking a brief hiatus. Today, the Treasury will be selling $43 billion in 5yr notes with Treasury watchers again hoping to see strong auction results, but the looming FOMC minutes that come an hour after the auction deadline may keep some investors holding back.


    • Meanwhile, the futures market continues to increase odds for a rate hike in June (34.6%) and also in July (23.8%) along with an implied year-end funds rate at 4.767%. thus,  the futures market is taking back much of the cuts it had been projecting prior to the latest round of hawkish Fed Speak. It seems the market is finally starting to believe the Fed will keep rates higher-for-longer and that is also helping to push yields higher in the Treasury market.


Agency Indications — FNMA / FHLMC Callable Rates

Maturity (yrs) 2 Year 3 Year 4 Year 5 Year 10 Year 15 Year
0.25 5.07 4.81 4.78 4.81 5.02 5.48
0.50 5.06 4.78 4.72 4.70 4.87 5.37
1.00 5.05 4.75 4.69 4.65 4.78 5.24
2.00 4.73 4.63 4.58 4.67 NA
3.00 4.53 4.60 NA
4.00 4.56 NA
5.00 4.52 NA
10.00 NA

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Published: 05/24/23 Author: Thomas R. Fitzgerald