After the Fed job data comments, TREASURIES Yields remain near their monthly highs

(Updates with speeches from Powell and others, updates prices. Changes byline) by Matt Tracy NEW YORK – U.S. Treasury yields remained near their one-month peak Wednesday after investors digested comments made by Federal Reserve officials last week following a surprisingly strong January employment report. Jerome Powell, Fed Chair addressed the Tuesday jobs data and indicated that he was open to raising the Fed’s benchmark rate. This would be higher than the range of 5.00% to 5.255% the central bank had expected before the strong employment numbers. John Williams, President of the New York Federal Reserve, stated Wednesday that while the Fed still has a lot to do regarding rates, he sees a peak rate at 5.25% as reasonable. 25-basis point increments are currently considered the best way forward. According to the Labor Department, 517,000 U.S. jobs were added in January while the unemployment rate fell below 3.4% for the first time since 1953. After a 0.4% increase in December, the average hourly wage increased by 0.3% last month. John Madziyire (senior portfolio manager and head Treasuries and Inflation, Vanguard Fixed Income Group) stated that “what the data did last week is pretty much get the marketplace to start pricing in accord with the Fed.” “We are at a stage now, at least relative speaking, where there is more certainty about the Fed’s future path and less volatility regarding expectations for its actions,” he said. Benchmark 10-year yields stood at 3.657% last week, having previously reached 3.692%. This was the highest level since Jan. 6. They have risen from the low of 3.333% Thursday. The yields on two-year bonds, however, are at 4.454%. They also reached 4.493% Monday, which is the highest level since Jan. 6. Next major piece of U.S. data will be the release of the January consumer price index report on February 14. It is expected that it will show that headline prices rose 0.5% while core prices increased 0.4%. Madziyire stated, “Looking at the rate of change (up 450 basis point) and the long and variable lags it makes sense that the Fed has now clearly moved to a data-dependent pause.” On Wednesday, $35 billion was sold by the Treasury Department in 10-year bonds to meet strong demand after Tuesday’s weak sale of $40B in three-year note. The 10-year note sold at a record yield of 3.613%. This is around 3 basis point lower than where they were traded prior to the auction. The highest ratio of bid-to cover since February 2022 was 2.66. There were concerns that Powell would be more hawkish on future rate rises, which likely drained demand for three-year notes. His comments came at the same moment as the auction. On Thursday, the Treasury will also sell $21 Billion in 30-year bonds. Tuesday, February 8, 2005 at 3:05 PM New York / 2005 GMT Prices Current Net Yield Change (bps), Three-month bills 4.59.7084 0.005 Six month bills 4.74.9238 0.000 Five-year notes 99-98/256 3.7442 -0.026 Seven year note 98-128/256 3.7462 3.8238 -0.021 Twenty-year bonds 101-228/256 3.862.0.000 30-year bonds 105-60/256 3.7079.0.002 DOLLAR SWAP SPREADS

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