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U.S. yields rise ahead of Powell speech, November jobs data

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NEW YORK —

U.S. Treasury yields rose on Tuesday as investors awaited

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comments this week by Federal Reserve Chairman Jerome Powell and

labor market data for November that could reinforce expectations

the U.S. central bank will slow its pace of hiking interest

rates.

Powell will address the economy, inflation and labor on

Wednesday at the Brookings Institution, while the non-farm

payrolls report comes out Friday, with economists polled by

Reuters expecting 200,000 jobs to have been added this month.

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Investors also are waiting for data on U.S. gross domestic

product for the third quarter, Chicago manufacturing numbers and

factory activity based on the Institute for Supply Management.

“We haven’t gotten any new information, new economic data

that would significantly alter the (market’s) path,” said Tom

Simons, money market economist at Jefferies & Co.

The market has been slow to incorporate “extremely

consistent” messaging from the Fed that it is not done hiking

rates, which will be in smaller increments, but that once they

get to the terminal rate it will stay there for a while, Simons

said.

Fed funds futures have priced in a 63.5% chance of a

50-basis-point hike at the Fed’s policy meeting Dec. 13-14, with

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the terminal rate peaking at 5.007% next June and then falling

to 4.644% in December 2023..

Markets believe “the Fed is going to be able to pivot

toward a more neutral level of the federal funds more quickly

than is likely to be the case,” Simons said.

The yield on 10-year Treasury notes

rose 5 basis points

to

3.752

%, while the two-year yield, which typically

moves in step with interest rate expectations,

rose 1.5 basis points

at

4.486

%.

The yield curve measuring the gap between yields on two-

and 10-year notes remained deeply inverted at

-73.6

basis points. The inversion, when yields on short-dated

debt are higher than longer-dated debt, indicates a looming

recession.

“The bond market has a pretty heavily inverted yield

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curve pricing in a pretty lengthy recession with an

understanding the Fed isn’t going to be there right away to

rescue the market if things slow down,” Simons said.

Investors sold Treasuries as they anticipate details about

Amazon.com Inc’s multi-tranche corporate bond deal.

The deal features two-, three-, five-, seven- and 10-year

notes. The initial price talk on the maturities is U.S.

Treasuries plus 45 basis points (bps, 55 bps, 85 bps, 100 bps,

and 115 bps, respectively.

Wall Street dealers typically look to lock in borrowing

costs for corporate bonds they are underwriting. As part of that

process, a dealer sells Treasuries as a hedge to lock in the

borrowing cost on the bond issue before the deal is completed.

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Once the bond is sold, the dealer buys Treasuries to exit the

“rate lock.”

“We are the low end of the range yields. When you see

corporate supply as a factor, we tend to see a little sell-off,”

said Subadra Rajappa, head of U.S. rates strategy, at Societe

Generale in New York.

The yield on the 30-year Treasury bond was

up 5.5 basis points

at

3.804

%.

The breakeven rate on five-year U.S. Treasury

Inflation-Protected Securities (TIPS) was last at

2.358

%.

The 10-year TIPS breakeven rate was last

at

2.267

%, indicating the market sees inflation averaging about 2.3%

a year for the next decade.

The U.S. dollar 5 years forward inflation-linked swap

was last at

2.465

%. The swap is seen by some as a better gauge of inflation

expectations due to possible distortions caused by the Fed’s

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quantitative easing.

Nov. 29 Tuesday 3:47 p.m. New York / 2047 GMT

Price Current Net

Yield % Change

(bps)

Three-month bills 4.27 4.3771 -0.025

Six-month bills 4.5525 4.7245 -0.010

Two-year note 100-7/256 4.4856 0.015

Three-year note 100-174/256 4.2524 0.022

Five-year note 99-194/256 3.9288 0.037

Seven-year note 100-28/256 3.857 0.046

10-year note 103-20/256 3.7516 0.050

20-year bond 99-192/256 4.0182 0.043

30-year bond 103-124/256 3.804 0.055

DOLLAR SWAP SPREADS

Last (bps) Net

Change

(bps)

U.S. 2-year dollar swap spread 30.75 -0.75

U.S. 3-year dollar swap spread 12.00 -1.00

U.S. 5-year dollar swap spread 4.00 -1.50

U.S. 10-year dollar swap spread -4.25 -1.00

U.S. 30-year dollar swap spread -45.00 -0.25

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Nick

Zieminski and Richard Chang)

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