TREASURIES-Yields tumble to two-week lows on recession fears

BY Reuters | ECONOMIC | 06/23/22 09:44 AM EDT
    (Adds quotes, updates prices)
    By Karen Brettell
    NEW YORK, June 23 (Reuters) - U.S. Treasury yields fell to
two-week lows on Thursday on concerns that the Federal Reserve
will cause a recession by aggressively hiking interest rates,
and on a growing belief that yields may have topped for the near
term even if inflation stays high.
    Yields have dropped from more-than-decade highs reached
before last week's Fed meeting, when the U.S. central bank hiked
rates by 75 basis points, the biggest increase since 1994, and
signaled a similar move is possible in July.
    Fed Chairman Jerome Powell will testify before Congress for
a second day on Thursday, a day after saying the Fed is not
trying to engineer a recession to stop inflation but is fully
committed to bringing prices under control even if doing so
risks an economic downturn.
    There are "growing recession fears," said Benjamin Jeffery,
an interest rate strategist at BMO Capital Markets, noting that
Powell's tone on Wednesday was "a bit more cautious."
    As concerns about a recession increase, Jeffery says 10-year
yields could drop back to the 2.50%-to-2.75% area, "especially
if we started to see even more concerning economic data and even
maybe some slowing in terms of hiring."
    Benchmark 10-year yields were at 3.111%, after reaching
3.498% on June 14, the highest since April 2011.
    Two-year Treasury yields fell to 2.994%. They have been down
from 3.456% on June 14, which was the highest since November
    The closely watched yield curve between two-year and 10-year
notes was at 12 basis points, after inverting
early 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
    Fed funds futures traders have pared back expectations on
how high the Fed is likely to raise its benchmark rate. They are
now pricing for the rate to peak at 3.51% in March, down from
expectations last week that it would increase to around 4%. It
is currently 1.58%.
    Bonds were boosted earlier on Thursday after data showed
that euro zone business growth has slowed significantly this
month - and by much more than expected - as consumers concerned
about soaring bills opted to stay at home and defer purchases to
save money.
    U.S. data on Thursday showed that the number of Americans
filing new claims for unemployment benefits edged down last week
as labor market conditions remained tight, though some slowing
is emerging.
    Inflation expectations also fell on Thursday. Breakeven
rates on five-year Treasury Inflation-Protected Securities
(TIPS), a measure of expected annual inflation for the next five
years, fell as low as 2.70%, the lowest since Feb. 8. They are
down from a five-week high of 3.25% reached on June 13.

    The Treasury will sell $18 billion in five-year TIPS on

      June 23 Thursday 9:15AM New York / 1315 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.575        1.6032    0.010
 Six-month bills               2.3275       2.3878    -0.018
 Two-year note                 99-20/256    2.9935    -0.063
 Three-year note               99-90/256    3.1046    -0.091
 Five-year note                97-160/256   3.1482    -0.079
 Seven-year note               97-96/256    3.1745    -0.062
 10-year note                  98           3.1112    -0.045
 20-year bond                  96-184/256   3.4798    -0.012
 30-year bond                  93-72/256    3.2269    -0.015

                               Last (bps)   Net
 U.S. 2-year dollar swap        36.75        -2.50
 U.S. 3-year dollar swap        15.75        -0.75
 U.S. 5-year dollar swap         3.75         0.00
 U.S. 10-year dollar swap        7.50         0.25
 U.S. 30-year dollar swap      -25.25         0.25

 (Reporting by Karen Brettell; Additional reporting by Dhara
Ranasinghe in London; Editing by Jonathan Oatis)

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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.

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