TREASURIES-U.S. yields slide for third day as slowdown fears mount

BY Reuters | TREASURY | 05/20/22 04:00 PM EDT
       * U.S. yield curve flattens in four of last five sessions
    * Fed funds futures firmer suggesting pullback in steep hike
view
    * Focus on FOMC minutes next week, slew of U.S. data

 (Adds new comments, bullets, updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, May 20 (Reuters) - U.S. Treasury yields fell for a
third straight session on Friday, with benchmark 10-year yields
hitting fresh three-week lows, as investors grew concerned about
increasing signs of an economic slowdown even as the Federal
Reserve vowed to stay aggressive with monetary tightening.
    "The chance of recession is growing but the Fed doesn't
respond by backing off," said Jim Vogel, senior rates
strategist, at FHN Financial in Memphis, Tennessee.
    He added that he expects inflation to remain high for the
rest of the decade.
    The S&P 500 sank on Friday, putting the market benchmark on
the cusp of confirming it has been in a bear market since
hitting a record high in January. That has boosted the appeal of
Treasuries as a safe haven.
    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 Fed 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 afternoon trading, the benchmark U.S. 10-year yield fell
7.4 basis points to 2.7811%, after earlier touching
2.774%, a three-week trough.
    The 30-year yield fell as well, dipping 7.3 bps to 2.994%
.
    On the front end of the curve, U.S. two-year yields  dipped
3.3 bps to 2.578%.
    The yield curve flattened again on Friday, with the spread
between U.S. two- and 10-year yields narrowing to 20 bps
. It has flattened in four of the last five
sessions.
    Friday brought little action in terms of U.S. economic data
and events, but next week should be hectic.
    The minutes of the last Federal Open Market Committee
meeting are due for release on Wednesday, while Kansas City Fed
President Esther George, a voter on this year's FOMC, and
Atlanta Fed President Raphael Bostic are scheduled to speak next
week.
    "Wednesday's FOMC minutes release carries with it a
meaningful amount of event-risk; most of it hawkish," wrote BMO
Capital in a research note.
    "Within this discussion, we cannot help but assume there
were those more hawkishly-minded advocating for a 75 basis-point
hike if not 100 bps. It's those headlines that will presumably
define the initial reaction to the minutes release."
    There is data as well such as U.S. new home sales, durables,
revised gross domestic product for the first quarter, as well
personal income and consumption.

      May 20 Friday 3:35PM New York / 1935 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.0175       1.0342    -0.013
 Six-month bills               1.45         1.4808    -0.021
 Two-year note                 99-217/256   2.5806    -0.030
 Three-year note               100-16/256   2.7279    -0.049
 Five-year note                99-196/256   2.8009    -0.048
 Seven-year note               100-88/256   2.8199    -0.057
 10-year note                  100-196/256  2.7865    -0.069
 20-year bond                  101-8/256    3.1797    -0.072
 30-year bond                  97-156/256   2.9964    -0.069

   DOLLAR SWAP SPREADS
                               Last (bps)   Net
                                            Change
                                            (bps)
 U.S. 2-year dollar swap        28.25        -1.25
 spread
 U.S. 3-year dollar swap        13.25        -1.00
 spread
 U.S. 5-year dollar swap         2.50        -0.75
 spread
 U.S. 10-year dollar swap        5.50        -0.75
 spread
 U.S. 30-year dollar swap      -27.50        -1.00
 spread


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

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.

fir_news_article