TREASURIES-Yields up slightly as risk-off mode takes a breather

BY Reuters | TREASURY | 06/21/22 09:59 AM EDT
       By Davide Barbuscia
    NEW YORK, June 21 (Reuters) - U.S. Treasury yields were
slightly higher on Tuesday as the risk-off mode which weighed on
U.S. markets last week took a pause, lifting stocks as investors
returned from a long holiday weekend.
    U.S. government bond yields declined on Friday after a
volatile week in which they hit more than 10-year highs on
expectations of aggressive interest rate hikes, and then fall on
concerns about how these will impact growth.
    Major Wall Street indexes fell for the third week in a row
last week amid heightened volatility after the U.S. Federal
Reserve's largest rate increase since 1994. But they were set
for a rise on Tuesday in line with European markets, where
shares were set for a second day of gains.
    "It feels like investors are selling Treasuries to pivot
back into equities following a brutal sell-off over the past few
weeks," said Steven Schweitzer, senior fixed-income portfolio
manager with the Swarthmore Group.
    Expectations of more big moves by the U.S. central bank as
it seeks to counter inflation by tightening financial conditions
were also pushing yields up, with Fed funds futures traders on
Tuesday pricing in an 85% chance of another 75 basis points hike
in July.
    "My hunch is that traders are now inking in, as opposed to
just penciling in, another 75 basis points rate (increase) in
July," said Schweitzer.
    Two-year Treasury yields, which are highly
sensitive to interest rate moves, were at 3.2% on Tuesday, up
from 3.166% on Friday.
    Benchmark 10-year yields were at 3.297%, up from
their 3.239% close at the end of last week.
    The long end of the U.S. yield curve, however, could change
course as investors continue to be cautious due to increasing
concerns there will be a sharp economic slowdown.
    Goldman Sachs now sees a 30% chance that the U.S. economy
will tip into a recession over the next year, up from its
previous forecast of 15%.
    A Fed determined to hike rates aggressively to fight
inflation implies flatter yield curves, more recessionary fears
and lower yields for longer-term Treasury debt, strategists at
NatWest Markets said.
    "However, the volatility in markets is too much to have a
strong directional view in the very near term - we will revisit
our duration call as things normalize," they said in a note.
    The closely watched yield curve between two-year and 10-year
notes climbed to 8.8 basis points on Tuesday,
after inverting by 5 basis points last week.
    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 21 Tuesday 9:24AM New York / 1324 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.57         1.5977    0.005
 Six-month bills               2.225        2.2807    0.052
 Two-year note                 98-176/256   3.2027    0.037
 Three-year note               98-152/256   3.3747    0.034
 Five-year note                96-146/256   3.3845    0.045
 Seven-year note               96-20/256    3.3887    0.052
 10-year note                  96-116/256   3.2977    0.059
 20-year bond                  94-172/256   3.6281    0.083
 30-year bond                  90-152/256   3.3771    0.083

   DOLLAR SWAP SPREADS
                               Last (bps)   Net
                                            Change
                                            (bps)
 U.S. 2-year dollar swap        42.25         0.00
 spread
 U.S. 3-year dollar swap        17.75         0.00
 spread
 U.S. 5-year dollar swap         4.50         0.50
 spread
 U.S. 10-year dollar swap        6.75         0.50
 spread
 U.S. 30-year dollar swap      -28.75        -0.50
 spread



 (Reporting by Davide Barbuscia: 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.

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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