(Adds analyst comments, 30-year bond auction results, Fed’s Powell’s remarks) * U.S. 30-year auction comes in weaker than expected * U.S. 30-year yield on track for best daily gain since October * U.S. 10-year on pace for biggest daily rise in three weeks * Fed’s Powell leans hawkish in latest remarks * U.S. rate futures price in 60% chance of rate cut in June 2024 By Gertrude Chavez-Dreyfuss NEW YORK, Nov 9 (Reuters) – U.S. Treasury yields climbed on Thursday, as investors sold across the board after a weaker-than-expected 30-year bond auction and hawkish remarks from Federal Reserve Chair Jerome Powell suggesting the U.S. central bank may not be done hiking interest rates just yet. U.S. yields rise when bond prices fall. The 30-year auction stopped at a high yield of 4.769% , higher than what the market expected at the bid deadline, suggesting that investors demanded a premium to take the bond. The rate miss of more than 5 basis points was the largest since August 2011, according to Action Economics in a blog after the auction. Other metrics were poor as well. The bid-to-cover ratio, a gauge of demand fell to 2.24 , from 2.35 at the October sale, and the 2.39 average. Indirect bidders, which include foreign central banks, took 60.1%, down from 65.1% in October and the 68.6% average. November’s indirect bids were the worst since November 2021, analysts said. Analysts described the auction as “terrible” and “ugly”. The U.S. Treasury had sold three-year and 10-year notes earlier in the week, which came out relatively better than expected given the increase in auction sizes from the previous month. That drove a rise in bond prices, pushing yields lower for most of the week. “There was optimism going in after the three-year and the 10-year did pretty well. But the 30-year ended up tailing, with relatively weak demand, and higher dealer takedown,” said Angelo Manolatos, macro strategist, at Wells Fargo Securities in New York. “The market traded poorly after the sale as well. And this has kind of taken away the wind out of the sails of the market a bit given the rally we saw going into today.” Manolatos said Thursday’s auction was the fifth 30-year sale that came out weaker than expected. U.S. yields rose further after Powell, in an International Monetary Fund conference, said Fed officials “are not confident” interest rates are high enough to finish the battle with inflation. The fight to restore price stability “has a long way to go,” the Fed chair said. “Yields initially spiked on the hawkish tone from the chairman of the Federal Open Market Committee but we should expect yields to come back down as markets prep for next week’s CPI (consumer price index report),” wrote Jeffrey Roach, chief economist at LPL Financial in Charlotte, North Carolina, in emailed comments. “The main reason markets are jittery is (that) the Chairman warned investors not to be misled by the ‘head fakes’ of a few good months of data. Next week’s inflation data should provide some salve for the markets as headline inflation will likely be soft from easing energy prices.” In afternoon trading, the benchmark 10-year yield rose from six-week lows to trade up 12.6 basis points (bps) at 4.634%. The note’s yield was on pace for its largest one-day gain in three weeks. The two-year yield, which typically reflects interest rate expectations, was up 8.85 bps at 5.022%. It was on track for its best weekly rise since late May. Post-Powell, U.S. rate futures on Thursday have priced in a 60% chance of a rate cut at the June meeting, according to the CME’s FedWatch tool. Those odds were about 70% before he spoke and about 26% a week ago. In other parts of the bond market, the yield curve modestly eased its inversion, or steepened on Thursday, with the spread between U.S. two-year and 10-year yields at -39.20 bps . Analysts said this was likely a giveback over the bull-flattening, or the deeper inversion the market saw the past two days, a scenario which normally precedes a Fed rate cut. A bull flattener typically reflects a decline in inflation expectations. After the auction, U.S. 30-year bond yields were up 12.6 bps at 4.7 81 %. November 9 Thursday 3:14PM New York/2014 GMT Price Current Net Yield % Change (bps) Three-month bills 5.27 5.4294 -0.004 Six-month bills 5.26 5.4929 -0.003 Two-year note 99-245/256 5.0223 0.086 Three-year note 99-142/256 4.7861 0.102 Five-year note 101-8/256 4.64 0.118 Seven-year note 101-50/256 4.6719 0.124 10-year note 99 4.626 0.118 20-year bond 92-140/256 4.971 0.121 30-year bond 89-200/256 4.771 0.115 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Andrea Ricci and Diane Craft)
