CASH – Mixed returns as the Treasury plans more borrowing

(Recast, update yields, add quarterly treasury repayments and analyst commentary) By Karen Pierog CHICAGO, Nov. 1 (Reuters) – U.S. Treasury yields were mixed on Monday as the federal government revealed a need for it borrowing increased this quarter, as the market anticipated the Federal Reserve’s likely announcement that it will begin to cut back on asset purchases. The benchmark 10-year yield last increased 1.2 basis points to 1.568%. The US Treasury said it planned to borrow $ 1.015 trillion in the fourth quarter, up from an estimate of $ 703 billion in August, due to a lower balance at the start of the quarter. “When you see these revised upward borrowing numbers a little higher than they were in the previous estimate, the gut reaction is that the auction size is not going to be reduced as much,” Tom said. Simons, money market economist at Jefferies in New York, adding that “these concerns are largely misplaced.” He said there was still a consensus that the Treasury, which will announce the size of upcoming debt auctions on Wednesday, will cut some of them, especially for the 20-year bond, which yields more than the 30-year bond. “I would expect the 20-year bond to trade better after the announcement of its reduction. If they aren’t, I would expect them to trade considerably less,” said Simons. He added that the increase in the Treasury borrowing estimate “reflects more optimism about how the debt ceiling will play out.” After a two-year suspension on the US debt limit expired in late July, Congress last month passed an interim solution that extended the deadline for the government to run out of cash to early December. FOCUS ON THE FED Market is focused on the two-day Fed meeting and Wednesday’s widely anticipated announcement that the central bank’s monthly purchases of $ 120 billion of treasury bills and mortgage-backed securities will be reduced. The Fed must walk a “very fine line” amid inflationary pressures, according to George Gonçalves, head of US macro strategy at MUFG in New York. “Can they afford to be accommodating when everyone is so hyper sensitive to what central banks are doing to fight and fight inflation?” maybe this will eventually matter for other asset classes, ”he said, noting that a potentially accelerated reduction could push Treasury yields higher. On the data front, the Institute for Supply Management said manufacturing activity slowed in October. The two-year yield, which hit a 19-month high last week, last increased 1 basis point to 0.5051%. The five-year yield, another part of the curve sensitive to the Fed’s rate expectations, was less than a basis point lower at 1.1864%. After flattening last week, a closely watched part of the yield curve that measures the spread between two-year and ten-year Treasury yields was about 1 basis point steeper at 106.30 points basic. The spread between five-year bonds and 30-year bonds also widened, increasing by 3.10 basis points to 77.90 basis points. Inflation expectations have remained below last week’s peak to reach the highest levels in more than a decade. The breakeven rate on five-year Inflation-Protected Treasury Securities (TIPS) was the latest at 2.84%. For 10-year TIPS, it was 2.5%. November 1 Monday 4:00 p.m. New York / 2000 GMT Price Current net yield% Change (bp) Three-month bills 0.05 0.0507 -0.007 Six-month bills 0.065 0.0659 0.003 Two-year bill 99-190 / 256 0, 5,051 0.010 Three-year bond 99-146 / 256 0.7726 0.017 Five-year bond 99-180 / 256 1.1864 -0.002 Seven-year bond 99-126 / 256 1.4516 -0.002 10-year bond 97-32 / 256 1.568 0.012 20-year bond 95-232 / 256 2.0015 0.011 30-year bond 100-164 / 256 1.9714 0.030 SPREADS DOLLAR SWAP Last (bps) Net change (bps) 2-year US dollar swap 20.00 spread $ 1.00 3-year US dollar swap 21.25 1.00 5-year US dollar swap spread 6.50 2.25 10-year US dollar swap spread 1.25 1.00 30-year US dollar swap spread -21, 75 0.25 spread (Report by Karen Pierog; edited by Kirsten Donovan)

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