U.S. Treasury yields rise to their highest level in 20 months

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U.S. Treasury yields rise to their highest level in 20 months

LONDON, Oct 18 Reuters - Short U.S. Treasury yields resumed their upward march on Monday with five-year yields rising to their highest levels of 20 months as the combination of slowing growth and rising price pressures prompted hedge funds to increase their short bets.

Yields on benchmark five-year bonds rose to 1.18%, its highest levels since Feb 2020 extending a two consecutive week strengthening streak.

While yields on 30-year US bonds rose even lower, they crept higher than the 4 bps move rise on the short end of the curve. That flattened the gap between five-year and 30 - year debt to its narrowest level since May 2020.

Recent weekly positioning data showed hedge funds increased short bets on 15 and 2 year credit notes while simultaneously increasing their bullish bets on 10 year debt, indicating investors expect this curve flattening trend to extend in the coming months.

Yields on benchmark 10-year US debt held at 1.61%, just below a June high of 1.63% hit last week.

U.S. bonds have sold off last week on strong U.S. retail sales data and some hawkish comments from some Fed speakers, but Jefferies analysts believe it has encouraged some investors to add new short bets on U.S. bonds

U.S. retail sales rose 0.7% last month and data for August was revised higher to show retail sales increased 0.9% instead of 0.7% as originally reported by the Commerce Department.

The 10-year TIPS breakeven rate was last at 2.56%, hovering within near a five month high indicating the market sees inflation averaging almost 2.6% a year for the next decade.

Money markets now refer to a 42% probability of one 25 bps rate hike by the U.S. Federal Reserve in September 2022 compared to a 24% probability a month earlier, according to CME data.