TREASURIES-Treasury yields little changed as Evergrande payment eases fears

BY Reuters | TREASURY | 09/22/21 10:36 AM EDT
    (Opens U.S. market)
    By Herbert Lash
    NEW YORK, Sept 22 - U.S. Treasury yields were little changed on Wednesday as fears of imminent
contagion from China Evergrande receded after it settled interest payments on a domestic bond and
investors awaited word from the Federal Reserve later in the day.
    The People's Bank of China injected 90 billion yuan into the banking system, soothing fears of
financial fallout from a default by the debt-laden Chinese property developer.
    The Fed is expected to unveil how it will taper its monthly asset purchases later this year
and show in updated projections whether higher-than-expected inflation or a resurgent COVID-19
pandemic further weighs on the economy.
    A statement from a two-day meeting of the Fed's policy-setting committee is expected at 2 p.m.
    The yield on the benchmark 10-year Treasury note was down 0.5 basis points at
1.319% as investors awaited the statement and remarks from Fed Chair Jerome Powell.
    The market consensus expects the Fed as soon as November to begin to reduce its Treasury
purchases by $10 billion a month and mortgage-backed security purchases by $5 billion a month.
    The timeframe could be much slower that people expect, with the consensus view executed on a
quarterly basis, not monthly, said Steven Ricchiuto, U.S. chief economist at Mizuho Securities USA
    "You need to make sure the system adjusts very slowly to the developments. There's a lot of
concern on the committee that if they pull back too quickly, they will cause a problem," Ricchiuto
    The Fed likely will reduce its growth numbers for 2021 and next year, while raising its
inflation target for the two years, Ricchiuto said. The unemployment rate target may also be
raised a touch, but stagflation will not be part of the picture.
    "People will read a little bit of stagflation into the numbers, which I don't think is valid.
Stagflation isn't possible in the world we live in," Ricchiuto said.
    A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on
two- and 10-year Treasury notes, seen as an indicator of economic expectations, was
at 109.6 basis points.
    The two-year U.S. Treasury yield, which typically moves in step with interest rate
expectations, was up 0.6 basis points at 0.222%.
    The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS)
 was last at 2.455%.
    The 10-year TIPS breakeven rate was last at 2.298%, indicating the market sees
inflation averaging about 2.3% a year for the next decade.

      September 22 Wednesday 10:24AM New York / 1424 GMT
                               Price                                             Current   Net
                                                                                 Yield %   Change
 Three-month bills             0.025                                             0.0253    0.000
 Six-month bills               0.04                                              0.0406    -0.005
 Two-year note                 99-208/256                                        0.2221    0.006
 Three-year note               99-190/256                                        0.4623    0.010
 Five-year note                99-150/256                                        0.8358    0.007
 Seven-year note               100-4/256                                         1.1226    0.000
 10-year note                  99-92/256                                         1.3192    -0.005
 20-year bond                  99-64/256                                         1.795     -0.011
 30-year bond                  103-96/256                                        1.8524    -0.005

                               Last (bps)                                        Net
 U.S. 2-year dollar swap        11.25                                              0.00
 U.S. 3-year dollar swap        12.25                                              0.25
 U.S. 5-year dollar swap        10.50                                              0.25
 U.S. 10-year dollar swap        2.25                                              0.00
 U.S. 30-year dollar swap      -25.00                                             -0.25

 (Reporting by Herbert Lash; Editing by Will Dunham)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.