US yields climb, in line with equities, as risk appetite rises
U.S. jobless claims drop to four-month low
U.S. existing home sales fall
U.S. yield curve bear-steepens
U.S. 10-year TIPS auction shows solid demand
Adds new comment, bullets, outcome of 10-year TIPS auction
By Matt Tracy
WASHINGTON, Sept 19 (Reuters) -U.S. Treasury yields advanced on Thursday, in line with gains in stocks, as better-than-expected jobless claims data further stoked global risk appetite, a day after the Federal Reserve announced a jumbo interest rate cut.
The yield curve, a widely-tracked indicator on theeconomic outlook, also rose or steepened, with the spread between the two-year and 10-year yields hitting 14.3 basis points (bps), the widest gap since June 2022. It was last at 13.6 bps US2US10=TWEB, compared with 8.1 bps late on Wednesday.
The curve is also described as a bear steepener, a scenario in which increases in longer-dated yields are higherthan those on the front end, which suggests market participants are expecting a pick-up in inflation expectations at some point down the road.
A steepeningcurve typically foreshadows more upcoming rate cuts, which is true in abull steepener whereshort-term rates are falling faster than those on longer maturities. That, however, is not the case on Thursday.
"The curve steepening is the most obvious trend that's been in place since the FOMC meeting," said Guy LeBas, chief fixed income strategist at Janney Capital Management, referring to the U.S. central bank's policy-setting Federal Open Market Committee.
"And an aggressive Fed - coupled with the potential for either reflationary economic growth or a slight uptick in inflation expectations - are driving the curve steeper."
The benchmark U.S. 10-year Treasury yield US10YT=RR hit its highest level in about two weeks at 3.768% and was last up 5.1 bps at 3.738%. A better-than-expected U.S. jobless claims report did a lot to boost those yields, with the data showing the number of Americans filing new applications for unemployment benefits dropping to a four-month low.
The U.S. 30-year yield US30YT=RR also rose to roughly a two-week high and last traded up 6.4 bps at 4.071%
On the front end of the curve, the two-year yield US2YT=RR was slightly higher on the day at 3.604%.That yield was earlier pressuredby data showing existing home sales fell to their lowest level since 2023.
The bond market is still experiencing the impact of the Fed's decision on Wednesday to cut rates by 50 basis points, which tracked market expectations, butwas out of step with the majority of economists polled by Reuters who anticipated a 25-bp easing.
In a statement, the FOMC said it had gained greater confidence that inflation was under control, while Fed Chair Jerome Powell said in a press conference that the central bank would decide on the appropriate pace of future rate cuts.
US 10-YEAR TIPS AUCTION
A Treasury auction of $17 billion in 10-year Treasury Inflation-Protected Securities (TIPS) US10YTIPS=RR, which protect against inflation, met with decent demand and a 2.4 times bid-to-cover ratio on Thursday, slightly higher than the 2.38 seen in the last auction.
Indirect bidders, a major segment of auction participants, took down 71.9% of the note, higher than the 68.7% in the previous sale. More importantly, dealers, who generally step in when there's low demand, absorbed just 6.6%, the smallest uptake since January, analysts said.
U.S. 10-year TIPS yield fell after the auction. It was last flat at 1.565%.
After Wednesday's rate cutdecision, market participants said they were more focused on the Nov. 5 U.S. presidential election and how its outcome could determine the course of rates.
"We believe the outcome of upcoming U.S. elections will do far more to dictate the pace and ultimate magnitude of rate cuts than any potential policy mistake over a delta of 25 or 50 bps on the Fed decision," said Andrzej Skiba, head of the BlueBay U.S. fixed income team at RBC Global Asset Management.
Fed funds futures have priced in about 72 bps of cuts by the end of this year and 195 bps of cuts by October 2025.
"What's priced in the markets right now is basically an absurd number of rate cuts predicated on economic weakness, which may or may not emerge," said LeBas of Janney Capital Management.
"In the short term, I'm pretty optimistic about the power of economic growth in the fourth quarter."
Graphic-US yield curve https://reut.rs/4daTE9F
Reporting by Matt Tracy; Editing by Gertrude Chavez-Dreyfuss, Paul Simao and Nick Zieminski
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