TREASURIES-'Hawkish' Powell testimony cools rally

BY Reuters | ECONOMIC | 11/30/21 02:02 PM EST
    (Recasts, updates yields, adds analyst comments)
    By Karen Pierog
    CHICAGO, Nov 30 (Reuters) - A rally in U.S. Treasuries
sparked by concerns over the Omicron coronavirus variant cooled
on Tuesday as the market perceived testimony by Federal Reserve
Chair Jerome Powell before a U.S. Senate committee as hawkish,
sending yields higher and curves flatter.
    The benchmark 10-year note yield, which fell to
its lowest level since Sept. 24 at 1.412%, was last down 8.3
basis points at 1.446%. The 30-year yield, which
dropped to its lowest since late January at 1.776%, was last 8.6
basis points lower at 1.7938%. Yields move inversely to prices.
    The shorter end of the curve reversed course and rose with
the two-year yield, which reflects short-term
interest rate expectations, last up 1.4 basis points at 0.5236%.
    As a result, a closely watched part of the curve that
measures the gap between yields on two- and 10-year Treasury
notes fell as low as 90 basis points.
    Ben Jeffery, an interest rate strategist at BMO Capital
Markets in New York, pointed to Powell's comments about
abandoning the transitory characterization of inflation and
discussing ending the central bank's bond purchases sooner as
the catalyst for the market moves.
    "Powell came off as much more hawkish than many were
assuming given the variant risk," Jeffery said.
    "The fact that yields across the curve moved higher, led by
the front end and belly, kind of speaks to that kind of
assumption of more aggressive normalization maybe a little bit
sooner than previously expected," he added.
    Earlier in the session, yields across the curve tumbled
after Moderna's (MRNA) CEO told the Financial Times https://www.ft.com/content/27def1b9-b9c8-47a5-8e06-72e432e0838f
 that present vaccines would likely be less effective against
the new variant and that it would be a risk to completely shift
production to an Omicron-targeted dose while other variants
remained in circulation.
    The five-year note and 30-year bond yield
curve also flattened. The gap between the two was last 5.7 basis
points narrower at 64.60 basis points.
    The five-year breakeven inflation rate tumbled to a
one-month low of 2.83% as Powell testified..
November 30 Tuesday 13:38PM New York / 1838 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.05         0.0507    -0.002
 Six-month bills               0.1025       0.104     0.005
 Two-year note                 99-244/256   0.5236    0.014
 Three-year note               99-208/256   0.8143    0.002
 Five-year note                100-128/256  1.1468    -0.038
 Seven-year note               100-232/256  1.3638    -0.064
 10-year note                  99-88/256    1.446     -0.083
 20-year bond                  102-80/256   1.8607    -0.078
 30-year bond                  101-224/256  1.7938    -0.086

   DOLLAR SWAP SPREADS
                               Last (bps)   Net
                                            Change
                                            (bps)
 U.S. 2-year dollar swap        25.00         1.25
 spread
 U.S. 3-year dollar swap        23.00         0.25
 spread
 U.S. 5-year dollar swap        12.25         0.75
 spread
 U.S. 10-year dollar swap        7.25         2.25
 spread
 U.S. 30-year dollar swap      -16.00         1.50
 spread




 (Reporting by Karen Pierog and Tom Westbrook, additional
reporting by Dhara Ranasinghe and Yoruk Bahceli; Editing by Kim
Coghill, Kirsten Donovan and Barbara Lewis)

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.

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