TREASURIES-U.S. 10-year yield slides to three-week low as soft data adds to growth fears

BY Reuters | TREASURY | 05/19/22 03:32 PM EDT
       * U.S. 30-year yields fall to one-week low
    * Fed's George -Comfortable with 50-bps hikes in upcoming
    * U.S. 10-year TIPS auction shows lackluster results

 (Adds comment, 10-year TIPS auction, bullets, updates prices)
    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
fueled growth concerns amid aggressive monetary tightening by
the Federal Reserve.
    U.S. 10-year yields dropped to 2.772%, the
lowest since late April, and was last down 3.3 basis points at
    Since hitting a roughly 3-1/2-year high of 3.203% early last
week, the 10-year yield has fallen 43 bps.
    U.S. 30-year yields were also lower, declining to a one-week
trough of 2.975%. They were last at 3.065%, down by
less than 1 bps.
    "I don't think we have seen a peak in yields yet. We need to
see jobs take a hit, or inflation moderates at a faster pace,"
said Ellis Phifer, managing director, fixed income research at
Raymond James in Memphis, Tennessee.
    "But we still have a lot of supply chain issues. And we also
have issues with China's zero-COVID policy where they lock down
everything, which makes supply chain problems more difficult.
It's hard to think yields are done rising."
    Thursday's data showed another weak batch of economic
    Initial jobless claims unexpectedly rose last week, hitting
a four-month high of 218,000 for the week ended May 14. The
number likely suggested slowing demand for labor amid tightening
financial conditions. Continuing claims though were at their
lowest since the end of 1969.
    A separate report from the Philadelphia Fed showed its
business conditions index dropped to 2.6 in May from 17.6 in
     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.
    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. But she downplayed the notion 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 have priced a fed funds rate of 2.77%,
compared with the current 0.83% level. The market has also
factored in cumulative rate increases of 193 bps in 2022.
    Also on Thursday, the U.S. Treasury auctioned $14 billion in
10-year Treasury Inflation Protected Securities (TIPS), and
results were lackluster. The auction posted a high yield of
0.232%, lower than the expected rate at the bid deadline.
    The 2.24 bid-to-cover ratio, a gauge of demand, was the
lowest since July 2018.
    U.S. 10-year TIPS yield was last 0.208%, up 6
    "The scant real yield offered by today's auction does not
compensate investors very well with the risks of a more hawkish
Fed," said Tom Simons, money market economist, at Jefferies.

      May 19 Thursday 3:09PM New York / 1909 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.0325       1.0495    0.010
 Six-month bills               1.47         1.5015    -0.030
 Two-year note                 99-197/256   2.6219    -0.045
 Three-year note               99-230/256   2.7856    -0.052
 Five-year note                99-136/256   2.8521    -0.039
 Seven-year note               99-250/256   2.8786    -0.036
 10-year note                  100-48/256   2.8533    -0.031
 20-year bond                  99-248/256   3.2521    -0.004
 30-year bond                  96-88/256    3.0622    -0.009

                               Last (bps)   Net
 U.S. 2-year dollar swap        29.25         1.50
 U.S. 3-year dollar swap        14.00         0.75
 U.S. 5-year dollar swap         3.50         0.50
 U.S. 10-year dollar swap        6.25         0.50
 U.S. 30-year dollar swap      -26.50         0.50

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

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