TREASURY – “Hawkish” Powell’s Testimony Rally


Band Karen Pierog

CHICAGO, November 30 (Reuters)The testimony of Federal Reserve Chairman Jerome Powell struck a chord in the U.S. Treasury market on Tuesday, pushing up short-term yields, which had fallen earlier in the session as part of a rally through the curve triggered by concerns about the Omicron coronavirus variant.

Powell told a US Senate committee that the term “transient” to characterize inflation should probably be removed. He also said the Fed should consider stepping up its reduction in bond purchases at its next meeting in December.

The yield of the 10-year reference note US10YT = RR, which fell to its lowest level since Sept. 24 at 1.412%, was last down 8.5 basis points at 1.4443%. Yield at 30 years US30YT = RR, which fell to its lowest level since at the end of January at 1.776%, was down 8.5 basis points to 1.7951%. Yields move in the opposite direction to prices.

The shorter end of the curve inverted and rose with the two-year rate US2YT = RR, which reflects short-term interest rate expectations, lasts up to 5.1 basis points at 0.5611%.

A closely followed part of the curve measuring the spread between the yields of 2- and 10-year treasury bills US2US10 = TWEBflattened, the gap falling to as low as 87.80 basis points.

“Powell was much more hawkish than many thought given the variant risk,” said Ben Jeffery, interest rate strategist at BMO Capital Markets in New York City, adding that the market believed “an earlier end of the cut could mean a faster take-off of rate hikes.”

Federal funds rate futures 0 # FF:, which tracks short-term interest rate expectations, on Tuesday assessed an 86% chance of a quarter-point Fed tightening by June, up from 74% on Monday, with investors fully taking into account account for this rate hike by July.

JOhn Canavan, senior analyst at Oxford Economics in New York City, said yields at the shorter end of the curve have risen due to heightened expectations of rising interest rates, while long-term yields are remained lower due to the flattening of the curve, a feeling of risk that sent equities down and demanded that the portfolio be rebalanced at the end of the month. .NOT

“Fed Chairman Powell has let us know that despite all the concerns they have about the variant, it is not enough to get them to change the course of their policy until we see economic impacts. real significance of the variant, ”Canavan said.

Earlier in the session, yields across the curve fell after Moderna’s CEO told the Financial Times that existing vaccines would likely be less effective against the new variant and there would be a risk of completely shifting production to a targeted dose of Omicron while other variants remain in circulation.

The five-year note and the 30-year bond US5US30 = TWEB the yield curve also flattened. The spread between the two narrowed by 7 basis points to 63.30 basis points.

Five-year breakeven inflation fell to a one-month low at 20.79%. US5YTIP = RR.

November 30 Tuesday 4:20 p.m. New York / 2120 GMT

Price

Current yield%

Net change (bp)

Three-month invoices US3MT = RR

0.055

0.0558

0.003

Six-month invoices US6MT = RR

0.1025

0.104

0.005

Two-year ticket US2YT = RR

99-225 / 256

0.5611

0.051

Three year note US3YT = RR

99-192 / 256

0.8358

0.024

Five year note US5YT = RR

100-110 / 256

1.1612

-0.024

Seven year note US7YT = RR

100-216 / 256

1.3731

-0.055

10 year note US10YT = RR

99-92 / 256

1.4443

-0.085

20-year bond US20YT = RR

102-68 / 256

1.8635

-0.076

30-year bond US30YT = RR

101-216 / 256

1.7951

-0.085

DOLLAR EXCHANGE DIFFERENCES

Last (bps)

Net change (bp)

2-year US dollar swap spread

23.50

-0.25

3-year US dollar swap spread

22.75

0.00

5-year US dollar swap spread

12.25

0.75

10-year US dollar swap spread

7.25

2.25

30-year US dollar swap spread

-16.00

1.50

(Reporting by Karen Pierog and Tom Westbrook; additional reporting by Dhara Ranasinghe, Yoruk Bahceli and Gertrude Chavez-Dreyfuss; editing by Barbara Lewis and Leslie Adler)

(([email protected]; +1 312 408 8647; Reuters messaging: [email protected]))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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