TREASURIES-U.S. yields slide for third day as growth worries persist

BY Reuters | ECONOMIC | 05/20/22 10:43 AM EDT
       By Gertrude Chavez-Dreyfuss
    NEW YORK, May 20 (Reuters) - U.S. Treasury yields fell for a
third straight session on Friday, as investors remained
concerned about growing signs of an economic slowdown even as
the Federal Reserve vowed to stay aggressive with monetary
tightening to stamp out persistently high inflation.
    "Concerns over slowing growth are taking hold with more
analysts warning of not just stagflation, but recession," said
Kim Rupert, managing director, fixed income at Action Economics
in San Francisco.
    "The hits to margins that have been seen in Target, Walmart,
and the like, due to rising costs of labor, materials, energy,
and transportation are seen as potential harbingers of the
worrisome future ahead," she added.
    Fed funds futures were firmer, suggesting that the U.S. rate
market has pulled back a bit from some of its more extreme rate
hike estimates on the view that the Federal Reserve may have to
scale back on its tightening plan, involving multiple 50
basis-point increases, as the economy slows down.
    The rates market on Friday had priced in a fed funds rate of
2.783% at the end of next year, compared with the current level
of 0.83%. That was as high as 2.9% two weeks ago.
    BofA Securities, in its latest research note, said there had
been a "market sea change in rate views" over the last two
weeks. It reaffirmed its call last month of going long duration
when the 10-year yield was between 2.8%-2.85%.
    The U.S. bank cited several factors such as yields having
overshot fundamentals, Fed pricing looking full, growth and
inflation easing and signs of an economic slowdown in surveys.
    In mid-morning trading, the benchmark U.S. 10-year yield
slipped 2.2 basis points to 2.833%.
    The 30-year yield fell as well, dipping 2.4 bps to 3.041%
.
    On the front end of the curve, U.S. two-year yields were
little changed at 2.613%.
    The yield curve flattened again on Friday, with the spread
between U.S. two- and 10-year yields narrowing to 21.2 bps
. It has flattened in the four of the last five
sessions.
    "The curve flattening dynamic should persist until the Fed
pivots dovish driven by early signs of softening employment & a
higher unemployment rate," BoFA wrote in its note.

      May 20 Friday 10:26 AM New York/1426 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.03         1.0469    0.000
 Six-month bills               1.465        1.4962    -0.006
 Two-year note                 99-201/256   2.6139    0.003
 Three-year note               99-242/256   2.7691    -0.008
 Five-year note                99-156/256   2.8351    -0.014
 Seven-year note               100-32/256   2.8548    -0.022
 10-year note                  100-104/256  2.8279    -0.027
 20-year bond                  100-100/256  3.2232    -0.029
 30-year bond                  96-196/256   3.0402    -0.025

   DOLLAR SWAP SPREADS
                               Last (bps)   Net
                                            Change
                                            (bps)
 U.S. 2-year dollar swap        27.75        -1.75
 spread
 U.S. 3-year dollar swap        12.75        -1.50
 spread
 U.S. 5-year dollar swap         3.00        -0.25
 spread
 U.S. 10-year dollar swap        6.00        -0.25
 spread
 U.S. 30-year dollar swap      -27.00        -0.50
 spread


 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Alison
Williams)

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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