US 10-year yields climb to two-year high following Fed hike, balance sheet perspective

  • The number of jobs in the United States is lower than expected
  • 2-year and 5-year yields hit their highest level since March and January 2020
  • US 10-year yields hit a two-year high of 1.8%
  • Federal funds futures show 80% chance of rising in March
  • Fed’s Daly says Fed could shrink balance sheet after few hikes

NEW YORK, Jan. 7 (Reuters) – The benchmark 10-year US Treasury yield soared to its highest level in two years on Friday, as a mixed report on non-farm payrolls in the United States showed less new jobs than expected created in December were considered sufficient. to keep the Federal Reserve on track to raise interest rates at its March meeting.

The US 10-year rate rose to 1.801%, the highest since January 2020.

U.S. 10-year rates gained around 25 basis points this week, their best weekly hike since September 2019.

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Much of the rise in yields this week was the release of the Fed report on Wednesday, which suggested an earlier-than-expected rate hike and the possibility of the Fed cutting its bond holdings sooner than many initially thought. .

San Francisco Fed President Mary Daly, who is not a voter this year, weighed in on the balance sheet debate on Friday. She said she could see the Fed reduce its balance sheet by more than $ 8 trillion soon after raising rates once or twice. Read more

Fed funds futures imply an 80% chance of a 25 basis point tightening by March Friday and more than three rate hikes by the end of the year. .

“There is a clear mind of a move towards a faster runoff relative to the Fed’s take-off date. But there was no mistake, once the first rate hike was over, it’s on the table, ”said Gregory Faranello, head of US rates. at Amerivet Securities in New York.

On the shorter end of the curve, US 2- and 5-year yields, which reflect the outlook for market interest rates, hit their highest level since March and January 2020, respectively.

US 30-year rates, meanwhile, hit new 11-week highs.

Yields surged after a US jobs report found positive things, such as falling unemployment rates and rising wage growth.

The non-farm payroll in the United States increased by 199,000 last month, the data showed. Market forecasts showed that the payroll increased by 400,000.

The unemployment rate fell to 3.9% from 4.2% in November, highlighting a tightening labor market, while the average hourly wage rose 0.6% in December, from 0.4% the month previous. Read more

As of late afternoon, US benchmark 10-year yields were up 3 basis points to 1.7673%.

“We should be getting a lot of two-way activity in the mid-1980s,” said Jim Vogel, senior rate strategist at FHN Financial in Memphis, Tennessee. “It makes a lot more sense for the 10s to stay in the 1.70 zone or enter the mid-1.80 as the next center clearing point.”

US 30-year yields hit a new 11-week high of 2.145%, and last rose 2 basis points to 2.1137%. The yield rose about 21 basis points this week, the strongest weekly advance in a year.

US 2-year yields hit 0.908%, the highest since March 2020, and last fell 1 basis point to 0.8611%. They rose almost 14 basis points this week, their biggest weekly gain since October 2019.

US 5-year yields hit their highest level since January 2020 at 1.525%. They were last up 2 basis points to 1.5003%. On the week, US 5-year yields were around 24 basis points, their biggest increase since September 2019.

The most active CBOT 10-year Treasury bill futures, where speculators can leverage and hedge against the benchmark U.S. government rating, has plunged to its lowest since February 2020.

A measure of the US yield curve, meanwhile, steepened on Friday, after flattening over the past two sessions. The spread between 2-year and 10-year rates increased by 89.70 basis points, the flatest since mid-December.

Friday January 7 16:13 New York / 2113 GMT

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Reporting by Gertrude Chavez-Dreyfuss; Editing by Jonathan Oatis and Nick Zieminski

Our standards: Thomson Reuters Trust Principles.

Carol N. Valencia