US 10-year yields slip as traders await fresh data
Updates to New York mid afternoon
By Karen Brettell
NEW YORK, Nov 22 (Reuters) - Longer-dated U.S. Treasury yields slipped on Friday as investors awaited fresh data that will offer further clues on Federal Reserve policy and continued to assess how the policies of the Donald Trump administration will affect the economy next year.
The next major clues on the economy will be November’s jobs andinflation data due in early December. Jobless claims fell to a seven-month low last week, which indicates that employment remains strong.
However, “the trajectory of inflation seems to have a touch of perkiness right now. It's probably just month-to-month noise, but nonetheless I think that's the next potential risk for higher yields,” said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia.
Treasury yields have risen over the past two months as data shows the U.S. economy remains more resilient than previously expected.
Investors betting on President-elect Trump's victory, with Republicans also taking control of Congress, added to the move. Trump is expected to introduce policies that boost growth, while analysts say immigration reform and tariffs are also likely to increase inflation.
Traders are watching whom Trump will appoint as Treasury Secretary. Trump floated the idea of appointingKevin Warsh on the understanding that he could later be Federal Reserve chair, the Wall Street Journal reported on Thursday.
Data on Friday showed that U.S. consumer sentiment ticked up for a fourth straight month in November, led by a big upswing in sentiment among Republicans following Donald Trump's victory.
The Fed is expected to slow its pace of cuts as it gets closer to the so-called neutral rate, which is when the economy is at full employment and inflation is stable.
The market is now pricing in a 53% probability the Fed will cut rates by 25 basis points in December, and only a 11% chance that it would be followed by another 25 basis point reduction in January, according to the CME Group’s FedWatch Tool.
Yields on benchmark U.S. 10-year notes US10YT=RR were last down 2.4 basis points at 4.408%.They reached 4.505% last Friday, the highest since May 31.
Two-year yields US2YT=RR rose 2.4 basis points to 4.373%. They hit 4.379% last Friday, the highest since July 31.
The yield curve between two-year and 10-year notes US2US10=TWEB flattened by around 4 basis points to 4 basis points.
Geopolitical tensions are also in focus as the Ukraine- Russia war escalates and yields can be pulled lower on demand for safe-havenU.S. government debt.
The Kremlin said on Friday that a strike on Ukraine using a newly developed hypersonic ballistic missile was a message to the West that Moscow will respond harshly to any "reckless" Western actions in support of Ukraine.
Trading volumes next week are likely to decline heading into Thursday’s U.S. Thanksgivingholiday when markets will be closed. The bond market will also have an early close at 2 p.m. EST (1900 GMT) on Friday.
That may mean the U.S. Treasury Department will need to pay higher yields for auctions of short- and intermediate-dated debt.
The government will sell $69 billion in two-year notes on Monday, $70 billion in five-year notes on Tuesday and $44 billion in seven-year notes on Wednesday, in addition to $28 billion in two-year floating rate notes on Tuesday.
UMich https://reut.rs/3OpU8yw
Reporting by Karen Brettell; editing by Jonathan Oatis and Nick Zieminski
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