(Recasts, updates yields; adds Treasury borrowing estimates,
analyst comments)
By Ross Kerber and Karen Pierog
Feb 1 (Reuters) - U.S. Treasury yields slipped on Monday,
pushed down by expectations of lower borrowing to fund economic
stimulus measures and data that showed factory activity slowed
last month.
The benchmark 10-year yield was last down 2.5
basis points at 1.0689%. The two-year yield,
typically an indication of interest rate expectations, was last
at 0.1113% and traded as low as 0.107%, just above its all-time
low of 0.105% reached in May.
The U.S. Treasury Department said it plans to borrow $274
billion in the first quarter, significantly less than the
November estimate of $1.127 trillion, with the decline due to
the department's higher cash balance at the beginning of
January.
For the second quarter, the Treasury said it plans to issue
$95 billion in net marketable debt, assuming an end-June cash
balance of $500 billion. The estimates do not include
assumptions for any future stimulus measures that may be enacted
into law with the Treasury warning that actual borrowing could
exceed the estimates as a result.
"The thing that jumps out at me the most is that these
projections seem to indicate that the Treasury plans to finance
some of its spending by drawing down this very huge cash balance
that has built up," said Nancy Vanden Houten, lead economist at
Oxford Economics, noting the balance totals $1.6 trillion based
on the latest data.
On Wednesday, the Treasury will announce refunding details,
with analysts expecting anticipated auction sizes for each
maturity of notes and bonds to remain steady given the large
balance that can be tapped.
Democratic President Joe Biden was set to meet later on
Monday with 10 moderate Republican U.S. Senators, who proposed
shrinking his proposed $1.9 trillion package to aid the
coronavirus-battered economy to $618 billion.
"There's less expectation of a grander stimulus package,
which is limiting expectations for Treasury supply" and lowering
yields, said Jim Barnes, director of fixed income for Bryn Mawr
Trust.
Meanwhile, U.S. manufacturing activity slowed slightly in
January, with the Institute for Supply Management (ISM)
reporting its manufacturing sector activity index fell to a
reading of 58.7 from 60.5 in December.
"The fact that underwhelmed a bit sort of limited the
selling pressure that there was a bit of earlier today, starting
overnight," said Ben Jeffery a strategist at BMO Capital
Markets.
ISM's measure of prices paid by factories for raw materials
and other inputs jumped to its highest level in nearly 10 years,
strengthening expectations inflation will perk up this year.
The 10-year Treasury Inflation-Protected Securities'
breakeven inflation rate, which briefly slipped
below 2% last week, was last at 2.024%, indicating the market
expects inflation to average more than 2% a year for the next
decade, above the current pace of inflation.
In the short-term market, the U.S. overnight repurchase
agreement or repo rate on Monday rose to 0.13% after
plunging to 0.03% on Thursday, the lowest since May 2020.
A closely watched part of the yield curve measuring the gap
between yields on two- and 10-year Treasury notes
was last up less than a basis point at 96.27 basis points.
Feb. 1 Monday 4:09 p.m. New York/2209 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 0.055 0.0558 -0.002
Six-month bills 0.0725 0.0735 -0.001
Two-year note 100-7/256 0.1113 -0.006
Three-year note 99-222/256 0.1701 -0.013
Five-year note 99-200/256 0.4193 -0.026
Seven-year note 99-244/256 0.7569 -0.025
10-year note 98-52/256 1.0689 -0.025
20-year bond 95-92/256 1.6509 -0.019
30-year bond 95-24/256 1.8397 -0.018
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 7.50 0.25
spread
U.S. 3-year dollar swap 8.25 0.25
spread
U.S. 5-year dollar swap 10.50 1.00
spread
U.S. 10-year dollar swap 4.50 0.50
spread
U.S. 30-year dollar swap -24.50 0.00
spread (Reporting by Ross Kerber and Karen Pierog; editing by Jonathan
Oatis and Marguerita Choy)
.Source
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