US Treasury yields flat to slightly higher; credit default swaps edge up
US Treasury yields were little changed to modestly higher on Wednesday, as traders took a breather after a months-long sell-off fueled by expectations that the Federal Reserve will keep rates high for some time to bring inflation down to its 2% target.
Yields, however, are expected to stay high, with the latest pullback seen as a minor blip.
«In the near term, there is pro-active reluctance to buy (Treasuries) particularly given the speed of the latest sell-off,» said Ben Jeffrey, rates strategist, at BMO Capital in New York.
«There are definitely enough risks out there in terms of labor market growth and the economy, as well as the risk of a government shutdown that will eventually help to bring some demand and push rates lower,» he added.
In the credit default swaps market, the threat of another government shutdown sent one-year credit default swaps to their widest since June 1, when the US government was on the cusp of a technical sovereign default as politicians in Washington haggled over the borrowing limit.
U.S. one-year credit default swaps widened to 22 bps on Wednesday, from 21 bps at Tuesday's close.
The U.S. two-year Treasury yield was last up 1.4 basis points (bps) at 5.089%, while the 10-year yield inched lower to 4.552%.
That narrowed the gap between the two- and 10-year yield to 53 bps, the tightest spread since May.
This suggested that the market is pricing in expectations that the Fed is nearing the end of its tightening cycle.
U.S. yields initially edged higher on news of an unexpected increase in August U.S.
durable goods orders. Minneapolis Fed President Neel Kashkari added fuel by saying it is not clear whether the central bank is finished raising rates amid ample evidence of ongoing economic
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