US bond yield curve flattens to 3-month low on Bostic comments

LONDON, Jan 31 (Reuters) – A section of the U.S. Treasury yield curve flattened to its lowest level in three months on Monday, after hard-line comments from the president of the Atlanta Fed , Raphael Bostic, strengthened bets on an aggressive tightening of monetary policy.

* The Fed could take a big half percentage point hike in interest rates if inflation remains stubbornly high, Bostic told the Financial Times in an interview over the weekend.

* While money markets and major Wall Street banks raised their expectations for Fed rate hikes to five this year last week, a 50bp hike in March remains a long shot despite the bank’s aggressive turn American center.

* The spread between two-year and 10-year US bond yields narrowed to a low of 59 basis points not seen since early November on Monday, extending a three-week losing streak.

* Spreads narrowed nearly 15bps last week, after the Fed signaled it would likely raise rates in March, as is widely expected, and reaffirmed plans to end pandemic bond purchases that month, before launching a significant reduction in its asset holdings.

* The latest positioning data shows that investors have increased their net short bets on US Treasuries to close at their highest levels since October.

* In absolute terms, the ten-year bond yield was almost unchanged from Friday at 1.78%, while the two-year note yield was up 3bps at 1.20%.

* US data released on Friday showed the personal consumption expenditures (PCE) price index, the Fed’s preferred gauge of inflation, rose 4.9% year-on-year, its biggest increase in 39 years.

(Reporting by Saikat Chatterjee; edited in Spanish by Ricardo Figueroa)

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