TREASURIES-U.S. 10-year yield drops to three-week low as weak data fans growth fears

BY Reuters | TREASURY | 05/19/22 11:00 AM EDT
       By Gertrude Chavez-Dreyfuss
    NEW YORK, May 19 (Reuters) - U.S. Treasury yields fell on
Thursday, with those on benchmark 10-year notes sliding to
three-week lows, as continued softness in U.S. economic data
supported growth concerns amid an aggressive path of monetary
tightening by the Federal Reserve.
    The move lower in yields was in line with weakness in U.S.
stocks.
    U.S. 10-year yields dropped to 2.772%, the
lowest since late April, and was last down 7 basis points at
2.815%.
    U.S. 30-year yields were also lower on the day, declining to
a one-week trough of 2.975%. They were last at
3.019%, down 5 bps.
    Thursday's data showed another weak batch of economic
numbers.
    Initial jobless claims unexpectedly rose last week, reaching
a four month-high of 218,000 for the week ended May 14, the
highest level since January. The number likely suggested slowing
demand for labor amid tightening financial conditions.
    That said, the same report showed the labor market remaining
tight, with continuing claims at their lowest since the end of
1969.
    At the same time, a separate report from the Philadelphia
Fed on Thursday showed its business conditions index dropped to
a reading of 2.6 in May from 17.6 in April.
     U.S. existing home sales also fell to their lowest in
nearly two years in April, as house prices jumped to a record
high amid a persistent lack of inventory.
    "These releases' aggregate influence is a weight upon
Treasury yields and the dollar. We expect job growth to slow to
300,000 in May with downside risk," said Stan Shipley, fixed
income strategist at Evercore ISI in New York.
    He added that the drop in the Philadelphia Fed business
index "suggests slower sequential growth."
    U.S. two-year yields were also weaker on the day, down 5.5
bps at 2.603%.
    Kansas City Fed President Esther George, a voter on this
year's Federal Open Market Committee on Thursday reinforced
expectations of multiple 50 basis-point hikes at upcoming Fed
meetings. She, however, downplayed the idea that the Fed might
shift to larger rate increases.
    "We are good at 50 basis points right now, and I would have
to see something very different to say we need to go further
than that," George said in an interview on CNBC.
    U.S. rate futures on Thursday have priced a fed funds rate
of 2.768%, compared with the current 0.83% level. The market has
also factored in cumulative rate increases of 193 bps in 2022.

      May 19 Thursday 10:43AM New York / 1443 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.0275       1.0445    0.005
 Six-month bills               1.4725       1.5041    -0.028
 Two-year note                 99-203/256   2.6094    -0.058
 Three-year note               99-240/256   2.7719    -0.066
 Five-year note                99-166/256   2.8265    -0.065
 Seven-year note               100-42/256   2.8486    -0.066
 10-year note                  100-128/256  2.8172    -0.067
 20-year bond                  100-168/256  3.2052    -0.051
 30-year bond                  97-44/256    3.019     -0.052

   DOLLAR SWAP SPREADS
                               Last (bps)   Net
                                            Change
                                            (bps)
 U.S. 2-year dollar swap        28.75         1.00
 spread
 U.S. 3-year dollar swap        13.00        -0.25
 spread
 U.S. 5-year dollar swap         3.25         0.25
 spread
 U.S. 10-year dollar swap        6.00         0.25
 spread
 U.S. 30-year dollar swap      -27.00         0.00
 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.

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