* U.S. 5/30 yield curve flattens, spread tightest since
March 2020
* U.S. 20/30 yield curve inverts in technical move
* U.S. 7-year note auction shows mixed results
(Adds new analyst comment, U.S. 7-year note auction results,
updates prices)
By Gertrude Chavez-Dreyfuss
NEW YORK, Oct 28 (Reuters) - U.S. Treasury yields advanced
on Thursday, as investors shrugged off weaker-than-expected U.S.
economic growth data and focused instead on the inflation
components of the report, as well as a solid jobless claims
number.
U.S. yield curves flattened again amid heightened
expectation of a rate hike by the Federal Reserve next year,
with the gap between 5-year and 30-year yields narrowing to 73.4
basis points, its tightest since March 2020.
Another key yield curve showing the spread between 2-year
and 10-year yields was also flatter on the day. That spread fell
below 100 basis points for the first time since early August.
The spread was last at 102.6 basis points.
In a sign of market uncertainty, the U.S. 20-year and
30-year yields inverted on Thursday. U.S. 20-year yields were
last up nearly 5 basis points at 1.9720%, while those
on the 30-year was up nearly 2 basis points at 1.9596%
.
"The 20/30-year yield inversion is just a function of the
overall yield curve flattening. The 20-year is a basket of
securities that traded quite cheaply back in the 1980s," said
Tom di Galoma, managing director at Seaport Global Holdings. "We
may be getting back to that scenario. And I just think there are
more buyers of the 30-year than the 20-year."
Treasury prices extended losses after the U.S. 7-year note
auction showed a high yield of 1.461%, higher than the expected
bid at the deadline, suggesting investors demanded a higher
premium to hold the note.
Overall, analysts said the results were solid, particularly
the decent uptake from non-dealers.
The weak U.S. gross domestic product report, which showed
the world's largest economy grew at a slower-than-expected 2.0%
annualized rate last quarter, had little impact on U.S. yields.
The soft GDP figure, the weakest since the second quarter of
2020, was offset by continued improvement in U.S. jobless
claims, which dropped to 281,000 last week, the lowest since
mid-March 2020. It was the third straight week that claims
remained below the 300,000 threshold.
"The Treasury market has discounted the weak GDP release and
focused on the GDP and core PCE deflators, which are improving,"
said Stan Shipley, fixed income strategist at Evercore.
The GDP deflator measures changes in the prices of U.S.
goods and services and helps analysts compare the levels of
yearly real economic activity. The core PCE deflator, on the
other hand, is a gauge of domestic inflation.
"People are also looking at the jobless claims numbers and
saying that we could actually get a good jobs report next week,"
Shipley added.
The U.S. GDP number did little to change market expectations
of a Fed lift-off in the summer next year. Fed funds futures
have priced in a more than 80% chance of a rate hike in June
2022, fully pricing that scenario by July
In afternoon U.S. trading, the benchmark U.S. 10-year yield
was up nearly 4 basis points at 1.5650%.
U.S. 2-year yields hit a fresh 19-month high of
0.5640%, and were last up less than a basis point at 0.499%.
The U.S. 5-year yield, another part of the curve that is
sensitive to Fed rate expectations, was up nearly 4 basis points
at 1.1799%.
(Reporting by Gertrude Chavez-Dreyfuss; Editing by Andrea Ricci
and Will Dunham)