TREASURIES-U.S. yields ease after Tuesday's Powell-fueled rise; soft housing data weighs

BY Reuters | TREASURY | 05/18/22 10:31 AM EDT
       By Gertrude Chavez-Dreyfuss
    NEW YORK, May 18 (Reuters) - U.S. Treasury yields slid in
choppy trading on Wednesday, tracking losses on Wall Street,
after poor U.S. housing data added to growing slowdown concerns
as a result of aggressive monetary tightening by the Federal
Reserve.
    That said, a steep path for U.S. interest rates remained the
prevailing market consensus.
    U.S. benchmark 10-year yields hit one-week highs of 3.015%
amid ultra-hawkish comments from Fed Chair Jerome Powell on
Tuesday. But the yield fell below 3% after a soft U.S. housing
starts number.
    Powell said on Tuesday the Fed would push interest rates as
high as needed to stem a surge in inflation that he said
threatened the foundation of the economy.
    "If that involves moving past broadly understood levels of
'neutral' we won't hesitate to do that," Powell said at a Wall
Street Journal event, referring to the rate at which economic
activity is neither stimulated nor constrained.
    Jim Vogel, in a research note on Wednesday, wrote that the
Fed Chair is using interviews to get across a "tough, inflation
fighting profile."
    Powell's reminders about inflation "did not change 2022
expectations for policy yesterday." Instead, they "accelerated
implied increases in 2023 and extended them throughout next
year."
    Interest rate futures have priced in a fed funds rate of
2.82% at the end of this year, and nearly 200 basis points in
cumulative hikes.
    The fall in U.S. housing starts and building permits amid
rising mortgage rates pressured Treasury yields as stocks fell.
    Housing starts slipped 0.2% to a seasonally adjusted annual
rate of 1.724 million units last month, while the data for March
was revised lower to a rate of 1.728 million units from the
previously reported 1.793 million units.
    At the same time, permits for future homebuilding dropped
3.2% to a rate of 1.819 million units.
    "We see significant further downside for housing demand and
for single-family building, confirmed by last week's sharp
decline in mortgage purchase applications," said Jefferies in a
research note whose contributors included chief economist Aneta
Markowska.
    "It's doubtful that the multi-family sector will be able to
fully offset those projected declines. Net, it's still likely
that overall housing starts will drift lower in the next three
to six months."
    In midmorning trading, 10-year yields slipped less than 2
basis points to 2.947, while the 30-year bond yield
 was down 2.6 basis points at 3.138%.
    On the front end of the curve, U.S. two-year yields, which
are sensitive to Fed rate expectations, were down less than a
basis point at 2.696%.
    The yield curve has further flattened, with the spread
between U.S. two- and 10-year yields narrowing to 25.4 basis
points.

      May 18 Wednesday 10:12AM New York / 1412 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.035        1.0521    -0.018
 Six-month bills               1.5125       1.5453    -0.003
 Two-year note                 99-161/256   2.6964    -0.002
 Three-year note               99-164/256   2.8763    -0.006
 Five-year note                99-36/256    2.9377    -0.008
 Seven-year note               99-96/256    2.9751    -0.020
 10-year note                  99-92/256    2.9495    -0.020
 20-year bond                  86-8/256     3.3474    -0.024
 30-year bond                  94-228/256   3.1392    -0.025

   DOLLAR SWAP SPREADS
                               Last (bps)   Net
                                            Change
                                            (bps)
 U.S. 2-year dollar swap        27.25        -0.25
 spread
 U.S. 3-year dollar swap        12.75         0.50
 spread
 U.S. 5-year dollar swap         3.00         0.00
 spread
 U.S. 10-year dollar swap        5.75        -0.25
 spread
 U.S. 30-year dollar swap      -26.75        -0.75
 spread


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

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