TREASURIES-U.S. yields retreat on mounting worries about global growth

BY Reuters | ECONOMIC | 05/16/22 10:30 AM EDT
       By Gertrude Chavez-Dreyfuss
    NEW YORK, May 16 (Reuters) - U.S. Treasury yields slid on
Monday in choppy trading, as growing global growth worries
deepened after unexpectedly weak economic data from China and a
steep drop in New York state's factory activity.
    Since hitting its highest in roughly 3-1/2 years early last
week, the benchmark 10-year yield has fallen about 25 basis
points, highlighting investor uncertainty in the wake of
aggressive monetary tightening from the Federal Reserve.
    "Price action in Treasuries, commodities and currencies are
showing you the first signs that potentially worries about
future growth are beginning to be the more dominant driver,"
said Huw Roberts, director of analytics at Quant Insight in
London.
    "There has always been the debate that when the Fed starts
to react to inflation, like they're reacting now, there would be
this transition, where we stop worrying about price inflation
and we start worrying about growth deflation," he added.
    Fears about a global slowdown were in focus on Monday, after
China's poor data.
    China's economic activity contracted sharply in April as
COVID-19 lockdowns took a heavy toll on consumption, industrial
production and employment. Chinese April retail sales plunged
11.1% on the year, almost twice the fall forecast, while
industrial output dropped 2.9% when analysts had looked for a
slight increase.
    In the United States, factory activity in New York state
slumped in May for the second time this year amid a collapse in
new orders and shipments. The New York Fed said on Monday its
"Empire State" index on current business conditions tumbled 36.2
points to a reading of -11.6 this month. A reading below zero
signals a contraction in the New York manufacturing sector.

    "The drop-off reported in May and weak levels for some of
the main indicators could be a sign that the stronger dollar is
weighing on the manufacturing sector," wrote Daniel Silver,
economist and executive director at JP Morgan in New York.
    The U.S. dollar index has gained 9.2% so far this
year, but was last down 0.1% at 104.47, in tandem with the
decline in U.S. Treasury yields.
    In midmorning trading, the yield on 10-year Treasuries
 slid 5 basis points to 2.882%, while the 30-year
bond slipped 2 basis points to 3.072%.
    On the front end of the curve, U.S. two-year yields, which
are sensitive to Fed rate expectations, fell 3 basis points to
2.565%.
    The yield curve has also flattened on the day, with the
spread between U.S. two and 10-year yields narrowing to 30 basis
points.
    Inflation expectations have also moderated.
    The breakeven rate on five-year U.S. Treasury
Inflation-Protected Securities (TIPS) slipped to
3.064% from 3.076% late on Friday.
    U.S 10-year breakeven rates slid to 2.768%,
from 2.784% on Friday.

      May 16 Monday 10:18AM New York / 1418 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.98         0.9959    0.008
 Six-month bills               1.4225       1.4524    0.012
 Two-year note                 99-223/256   2.5677    -0.029
 Three-year note               100          2.75      -0.044
 Five-year note                99-164/256   2.8281    -0.058
 Seven-year note               99-240/256   2.8848    -0.062
 10-year note                  99-248/256   2.8786    -0.054
 20-year bond                  86-144/256   3.3069    -0.019
 30-year bond                  95-244/256   3.0827    -0.009

   DOLLAR SWAP SPREADS
                               Last (bps)   Net
                                            Change
                                            (bps)
 U.S. 2-year dollar swap        28.50         0.50
 spread
 U.S. 3-year dollar swap        13.25         0.00
 spread
 U.S. 5-year dollar swap         4.50        -0.50
 spread
 U.S. 10-year dollar swap        7.00        -0.50
 spread
 U.S. 30-year dollar swap      -25.50        -1.25
 spread


 (Reporting by Gertrude Chavez-Dreyfuss; editing by Jonathan
Oatis)

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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