TREASURIES-Yields near week's lows as growth concerns weigh

BY Reuters | TREASURY | 06/17/22 03:48 PM EDT
    (Adds comments from Fed's Kashkari, quote, updates prices)
    By Karen Brettell
    NEW YORK, June 17 (Reuters) - U.S. Treasury yields held near
this week's lows on Friday after a volatile five days that saw
them hit more than 10-year highs on expectations of aggressive
rate hikes, and then fall on concerns about how these will
impact growth.
    The Federal Reserve is expected to continue hiking interest
rates aggressively as it faces soaring inflation, following a 75
basis points hike on Wednesday, the largest since 1994.
    "There's a lot of worries about the next time the Fed meets,
which is the end of July, about whether they are going to do 75
or do something slightly less, which would be 50 basis points,"
said Tom di Galoma, a managing director at Seaport Global
    Fed funds futures traders are pricing in a 78% probability
of a 75 basis points hike in July, and an 22% chance of a 50
basis points increase. The Fed's benchmark rate is expected to
rise to 3.76% by March, from 1.58% now.
    Yields briefly jumped after Minneapolis Fed President Neel
Kashkari on Friday said he supported the U.S. central bank's 75
basis points hike this week and could support another
similar-sized one in July, but said the Fed should be "cautious"
about doing too much too fast.
   "Though he is not a voter, he is one of the most dovish on
the FOMC, and so this stance is weighing on the bond market,"
analysts at Action Economics said in a note.
    The rapid increase in interest rates is expected to slow
growth and could tip the economy into recession, which would
likely send longer-dated Treasury yields lower.
    "As we go through the rest of the year I think rates will be
lower than they are right now, because I think we're headed
towards a recession sooner rather than later," di Galoma said.
    Data on Friday showed that Production at U.S. factories
unexpectedly fell in May, the latest sign of cooling economic
    Two-year Treasury yields, which are highly sensitive to
interest rate moves, were last at 3.166% and are down from
3.456% on Tuesday, which was the highest since November 2007.

    Benchmark 10-year yields were at 3.239%, after reaching
3.498% on Tuesday, the highest since April 2011.
    The closely watched yield curve between two-year and 10-year
notes was at 7 basis points, after inverting by 5
basis points on Tuesday. An inversion in this part of the curve
is seen as a reliable indicator that a recession is likely in
one to two years.

    June 17 Friday 3:00PM New York / 1900 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.5725       1.6004    0.015
 Six-month bills               2.175        2.229     0.005
 Two-year note                 98-193/256   3.1659    0.008
 Three-year note               98-176/256   3.3407    -0.020
 Five-year note                96-196/256   3.3401    -0.034
 Seven-year note               96-104/256   3.3339    -0.051
 10-year note                  96-240/256   3.2389    -0.066
 20-year bond                  95-208/256   3.5449    -0.070
 30-year bond                  92-24/256    3.2925    -0.069

                               Last (bps)   Net
 U.S. 2-year dollar swap        42.25        -2.00
 U.S. 3-year dollar swap        17.75         0.00
 U.S. 5-year dollar swap         4.00         0.75
 U.S. 10-year dollar swap        6.00         1.25
 U.S. 30-year dollar swap      -28.25         2.75

 (Reporting by Karen Brettell
Editing by Nick Zieminski)

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.

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