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TREASURIES-Two-year yields hit highest since 2009 on March rate hike bets
March 2, 2017 / 8:44 PM / 9 months ago

TREASURIES-Two-year yields hit highest since 2009 on March rate hike bets

    * U.S. 2-year yields hit highest since Aug 2009
    * 10-year yields hit more than two-week highs
    * Fed officials' recent comments push yields higher

 (Updates prices, adds comments)
    By Sam Forgione
    NEW YORK, March 2 (Reuters) - U.S. two-year Treasury yields
hit their highest in more than 7-1/2 years on Thursday, while
other U.S. yields hit multi-week or multi-month highs on
increasing expectations that the Federal Reserve will raise
interest rates at its March meeting.
    Fed funds futures on Thursday implied traders saw a 79.7
percent probability of a Fed rate increase at its March 14-15
policy meeting, up from 66.4 percent on Wednesday, according to
data from CME Group's FedWatch program. Expectations for a hike
jumped after hawkish comments on Tuesday from New York Fed
President William Dudley and San Francisco Fed President John
Williams. 
    Yields on U.S. two-year notes, which are
considered most vulnerable to Fed rate hikes, hit their highest
since August 2009 at 1.340 percent. The three-year yield
 reached a nearly 11-week high of 1.617 percent, while
the benchmark 10-year hit a more than two-week high
of 2.505 percent. 
    Dudley, one of the most influential U.S. central bankers and
a permanent voting member on the Federal Open Markets Committee,
said the case for tightening monetary policy soon had become "a
lot more compelling," while Williams said: "I personally don’t
see any need to delay" raising rates.
    "There has been more and more of the FOMC coming out with
the acknowledgment that (March) is a live FOMC meeting and that
they should raise rates soon," said David Coard, head of fixed
income sales and trading at Williams Capital Group in New York.
"All of those things have put the market on notice." 
    In addition, Fed Governor Lael Brainard said Wednesday that
an improving global economy and a solid U.S. recovery meant it
would be "appropriate soon" for the U.S. central bank to raise
interest rates.
    U.S. 30- and seven-year yields hit more than two-week highs
of 3.101 percent and 2.344 percent,
respectively, while five-year yields touched a
two-month high of 2.049 percent. 
    "People are just positioning themselves for a March rate
hike," said Justin Lederer, an interest rate strategist at
Cantor Fitzgerald in New York.
    Analysts said long-dated yields moved higher since investors
were taking Fed officials at their word that U.S. inflation and
the labor market were improving. Expectations of higher
inflation tend to lower longer-dated bond prices and push up
their yields since it erodes their interest payouts. 
    U.S. 10-year notes were last down 7/32 in price, while their
yield rose to 2.491 percent from 2.462 percent late Wednesday. 
    
March 2 Thursday 3:22PM New York / 2022 GMT
                               Price                  
 US T BONDS JUN7               149-1/32     -0-13/32  
 10YR TNotes JUN7              123-128/256  -0-56/25  
                                            6         
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.6575       0.6677    0.033
 Six-month bills               0.8175       0.8323    0.046
 Two-year note                 99-158/256   1.3203    0.032
 Three-year note               99-92/256    1.5977    0.033
 Five-year note                99-72/256    2.0271    0.036
 Seven-year note               98-182/256   2.3258    0.031
 10-year note                  97-232/256   2.4887    0.027
 30-year bond                  98-92/256    3.0843    0.013
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        34.00         0.25    
 spread                                               
 U.S. 3-year dollar swap        27.25         1.00    
 spread                                               
 U.S. 5-year dollar swap        10.25         0.75    
 spread                                               
 U.S. 10-year dollar swap       -2.25         1.25    
 spread                                               
 U.S. 30-year dollar swap      -37.75         1.50    
 spread                                               
    
    

 (Reporting by Sam Forgione; Editing by Lisa Von Ahn and Chizu
Nomiyama)
  

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