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US Treasury yields rose on Wednesday as the Treasury Department sold long-dated supply and data showed a widening US budget deficit.

That overturned an earlier drop in yields after consumer price inflation data for November reinforced bets the Federal Reserve will cut rates by 25 basis points next week.

Longer-term debt concerns were seen weighing on the market after the US government posted a USD 367 billion budget deficit for November, up 17% from a year earlier.

“Not only does today’s report from the Treasury confirm that we’ve borrowed USD 624 billion so far this fiscal year – USD 10 billion per day – but on a rolling basis, we’ve borrowed USD 2.1 trillion in the last twelve months. That’s an astonishing sum especially when considering the huge challenges ahead,” the Committee for a Responsible Federal Budget said in a release.

The Treasury Department earlier saw good demand for a USD 39 billion sale of 10-year notes, the second sale of USD 119 billion in coupon-bearing sales this week.

The debt sold at a high yield of 4.235%, more than a basis point below where they had traded before the sale. Demand was 2.70 times the amount of debt on offer, the highest bid-to-cover ratio since at least March 2022.

The US government saw solid demand for a USD 58 auction of three-year notes on Tuesday and will also sell USD 22 billion in 30-year bonds on Thursday.

Benchmark 10-year note yields were last up 5 basis points on the day at 4.271%.

Interest rate sensitive two-year note yields rose 1 basis point to 4.159%.

The yield curve between two-year and 10-year notes steepened by around three basis points to 11.3 basis points.

Yields fell earlier after data showed that both headline and core consumer inflation rose by 0.3% in November, in line with economists’ expectations, keeping the Fed on track for another interest rate cut.

“It was largely as expected. I don’t think it will change the Fed’s thinking, so I expect them still to cut rates next week,” said Eric Winograd, director of developed market economic research at AllianceBernstein in New York.

The consumer price index posted the largest gain since April after advancing 0.2% for four straight months. In the 12 months through November, the CPI climbed 2.7% after increasing 2.6% in October.

Excluding the volatile food and energy components, the CPI rose by the same margin for the fourth consecutive month. In the 12 months through November, the so-called core CPI gained 3.3%, following a similar advance in October.

“With the payrolls report behind us and now the inflation report behind us, there’s nothing stopping the Fed from cutting 25 bps next week,” said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.

Traders are pricing in a 95% probability of a 25 basis point cut at the conclusion of the Fed’s Dec. 17-18 meeting, up from 86% before the data, according to the CME Group’s FedWatch Tool.

A positive sign in the data was that shelter inflation continued to slow, but services and shelter inflation are still higher than the Fed would like, said Winograd.

“As a result of that, I expect them to signal next week some caution and cut rates, but to indicate that they’re not locked into cutting rates every meeting, that they’re going to have to continue to watch the data and that they will eventually need to see additional downward momentum in inflation,” he said.

Traders see the Fed as likely to pause rate cuts in January. The trajectory of rates then may depend on how quickly policies by the new Trump administration are introduced, and when they begin to be seen in the economic data.

(Reporting By Karen Brettell; Additional reporting by Chuck Mikolajczak; Editing by Christina Fincher, Bernadette Baum, and Deepa Babington)

 

A lower rung of US junk bonds is set to deliver its best returns in eight years in 2024, underscoring a significantly higher risk-return payoff for investors dabbling in speculative assets this year.

Returns on CC-rated debt, two rungs above D – meaning in default, have surged nearly 48% this year, a far cry from 83% in 2016 but nearly three times higher than last year, according to data from Morningstar Direct.

In comparison, investment-grade credit has generated returns between 3% and 5% this year, while other junk bond tiers have yielded returns between 7% and 15%.

Investment-grade bonds are generally perceived to be safer, but their lower risk and greater stability mean lower returns than often illiquid high-yield bonds.

This year’s outperformance by high-yield bonds has been driven by stronger corporate profitability and a soft economic landing that has kept default rates near historic lows and supported strong recovery rates, Bob Michele, global head of fixed income at JPMorgan Asset Management, said.

“It has been a very good year for credit,” Michele told the Reuters Global Markets Forum (GMF).

“Areas that stood out to us were the performance of bank debt, especially AT1, and the performance of high yield,” he added. AT1, or additional tier one bonds, are designed to act as shock absorbers that can be written off or converted into equity if a bank’s capital levels fall below a certain threshold, providing a cushion at times of market turmoil.

Despite record-tight spreads in corporate bond markets, asset managers remain bullish on US fixed income, bolstered by President-elect Donald Trump’s election victory and the Republicans’ control of the House and Senate, which are expected to reinforce pro-growth policies and further support risk assets.

“Spreads across risky assets are extremely tight and worth a second look for investors, but the favorable growth and labor market environment have continued to make it difficult for investors to step away,” Gennadiy Goldberg, US rates strategist at TD Securities, told the GMF.

The ICE BofA high-yield index, which tracks the performance of junk bonds .MERH0A0, has hit record highs above 1,736 this week and is heading for a rise of 9.7% in 2024.

(Reporting by Mehnaz Yasmin in Bengaluru. Editing by Amanda Cooper and Mark Potter)

 

NEW YORK – US Treasury yields rose on Tuesday as the Treasury sold USD 58 billion in three-year notes, the first of USD 119 billion in coupon-bearing sales this week, and as traders waited on key inflation data due later this week.

Tuesday’s three-year note auction saw solid demand at a high yield of 4.117%, only slightly above where it had traded before the sale. Demand was 2.58 times the amount of debt on offer.

It will be followed by an auction of USD 39 billion in 10-year notes on Wednesday and of USD 22 billion in 30-year bonds on Thursday.

Traders are waiting on consumer price inflation data on Wednesday and producer price inflation data on Thursday for any signs that inflation is picking up, which could derail the Federal Reserve’s expected interest rate cut next week.

“Those are the big numbers for the week,” said Tom di Galoma, head of fixed income trading at Curvature Securities. “I do think inflation is coming down… (but) inflation could certainly be a problem if it does push higher.”

Economists expect both headline and core consumer prices to have risen 0.3% in November, for an annual gain of 2.7% and 3.3%, respectively.

Producer prices are expected to show a 0.2% monthly increase in November, in both headline and core, for a 2.6% and 3.2% annual increase.

Markets are pricing in an 86% chance of a 25 basis point rate reduction next week, with a pause in January then seen as most likely.

Benchmark 10-year note yields were last up 2.5 basis points at 4.224%. Interest rate-sensitive two-year note yields rose 2.4 basis points to 4.151%.

The yield curve between two-year and 10-year notes was little changed on the day at 7 basis points.

Traders added to bets of a December rate cut after jobs data for November showed that the unemployment rate rose to 4.2%, from 4.1%, despite strong jobs gains during the month.

Data on Tuesday showed that US unit labor costs grew far less than initially thought in the third quarter, pointing to a still favorable inflation outlook, even though price increases have not moderated much in recent months.

Fed officials are in a blackout period before the Dec. 17-18 meeting.

(Reporting By Karen Brettell; Editing by Kevin Liffey and Chizu Nomiyama)

 

US Treasury yields rose on Monday as traders waited on key inflation data due this week to see whether stubbornly high price pressures could derail expectations for a Federal Reserve interest rate cut next week.

The Fed is widely expected to cut rates by 25 basis points at the conclusion of its Dec. 17-18 meeting, with a pause then seen as likely in January.

But inflation is key to whether the Fed will continue to cut rates.

Fed officials including Chair Jerome Powell have said that recent upticks in its preferred Personal Consumption Expenditures data reflect a bumpy path to its 2% annual target, but don’t change the overall trend.

“If we see a convincing uptick that the Fed isn’t able to continue using that bumpy excuse on, then that will call into question whether or not the Fed can deliver a rate cut next week,” said Vail Hartman, US rates strategist at BMO Capital Markets in New York.

Hartman said a solid to high 0.4% gain in core consumer prices could raise doubts over a cut next week, but rate expectations will also depend on producer prices.

Economists expect consumer prices released on Wednesday will show that both headline and core prices rose by 0.3% in November, for an annual gain of 2.7% and 3.3%, respectively.

Producer prices released on Thursday are expected to show a 0.2% monthly increase in November in both headline and core, for a 2.6% and 3.2% annual increase.

The next PCE release is due on Dec. 20.

Benchmark 10-year yields were last up 4.2 basis points at 4.195%. Interest rate-sensitive two-year yields rose 2.6 basis points to 4.124%.

The yield curve between two-year and 10-year notes steepened two basis points to 7 basis points.

Traders added to bets of a December rate cut after jobs data for November released on Friday showed some warning signs that the labor market was weakening. The unemployment rate rose to 4.2% from 4.1% despite strong jobs gains during the month.

Some underlying details in the report, including a weaker household survey, also pointed to declining labor market strength.

“The aggregate data is conforming with the whole slowdown theme,” said Hartman.

Fed officials are now in a blackout period before next week’s meeting.

Traders are also watching geopolitical events after rebels seized the Syrian capital of Damascus.

Risk appetite was boosted on news that China will adopt an “appropriately loose” monetary policy next year, the first easing of its stance in some 14 years, alongside a more proactive fiscal policy to spur economic growth.

The US Treasury Department will sell USD 119 billion in new coupon-bearing supply this week. This will include USD 58 billion in three-year notes on Tuesday, USD 39 billion in 10-year notes on Wednesday and USD 22 billion in 30-year bonds on Thursday.

(Reporting By Karen Brettell; editing by Jonathan Oatis)

NEW YORK – US Treasuries yield fell to a six-week low after the release of November payrolls data, as investors considered the numbers as a green light to one more rate cut by the Federal Reserve on its December 17-18 meeting.

The yield on the benchmark US 10-year Treasury note fell 3.3 basis points to 4.149%. The front end of the curve had a sharper drop, with the two-year  US Treasury yield falling 5 basis points to 4.096%.

The yield on the 10-year note fell to 4.126% during the session, its lowest since Oct. 21, while the 2-year yield slumped to 4.077%, a level not seen since Nov. 1.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes US2US10=TWEB steepened after to 5.1 points. Just before the payrolls release, the yield curve inverted to negative 7.1 basis points, the lowest in three months.

Odds of a 25-basis points rate cut in the December meeting jumped to 89% on Friday, up from 70% late on Thursday, according to the CME’s FedWatch Tool.

“It looks like there’s no reason to worry about an imminent recession and there’s no reason for the Fed to take a pause on cuts quite yet,” said Brian Jacobsen, chief economist at Annex Wealth Management.

Nonfarm payrolls increased by 227,000 jobs last month after rising an upwardly revised 36,000 in October, the Labor Department said in its closely watched employment report on Friday. But it did not seem to signal a material shift in labor market conditions.

“Data this morning was a Thanksgiving buffet with payrolls spot on, revisions positive, but unemployment ticking higher despite the participation rate falling. This print doesn’t kill the holiday spirit and the Fed remains on track to deliver a cut in December.”, said Lindsay Rosner, head of multi sector investing at Goldman Sachs Asset Management.

Ellen Zentner, chief economic strategist at Morgan Staney Wealth Management said although the economy is still producing a healthy amount of job and income gains, “a further increase in the unemployment rate tempers some of the shine in the labor market and gives the Fed what it needs to cut rates in December.”

The 10-year yields fell 4.4 basis points this week and the 2-year yields, 7.6 basis points.

Despite rising expectations the central bank will cut rates at its upcoming meeting, Federal Reserve Governor Michelle
Bowman said inflation risks to the economy remain real and labor market data hard to interpret, and that requires caution with further decisions on central bank rate cuts.

In addition, Chicago Federal Reserve Bank President Austan Goolsbee remained noncommittal on whether he would support an interest rate cut at the central bank’s meeting this month, but reiterated to his view that interest rates will fall over the next 12 months.

The breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) was last at 2.340% after closing at 2.369% on December 5.

The 10-year TIPS breakeven rate was last at 2.258%, indicating the market sees inflation averaging about 2.3% a year for the next decade.

(Reporting by Tatiana Bautzer, Chuck Mikolajczak, Davide Barbuscia and Lawrence Delevigne
Editing by Mark Potter and Nick Zieminski)