TREASURIES-U.S. yields flat as higher rates fuel growth concerns

BY Reuters | TREASURY | 06/28/22 02:31 PM EDT
    (Adds auction results, fresh prices)
    By Herbert Lash
    NEW YORK, June 28 (Reuters) - U.S. Treasury yields were
mostly flat on Tuesday after a report showed consumer confidence
slumped in June on concerns that high inflation will likely
weaken economic growth later this year.
    The Conference Board's consumer confidence index fell 4.5
points, but its expectations index, based on consumers'
short-term outlook for income, business and labor market
conditions, tumbled to 66.4 - the lowest since March 2013.

    The report brought to the fore concerns about what rising
inflation means for growth, an outlook many investors anticipate
as the Federal Reserve aggressively hikes interest rates to halt
a steady rise in consumer prices.
    "Most investors are accepting the fact that the economy is
going to have a hard landing," said David Petrosinelli, senior
trader at InspereX. "It's a continued lack of confidence in the
Fed being able to engineer it. People have accepted the fact the
Fed has to break demand before we can break prices."
    The yield on 10-year Treasury notes fell 0.2
basis points to 3.192%.
    A closely watched part of the Treasury yield curve measuring
the gap between yields on two- and 10-year notes, a
sign of economic expectations, was at 6.6 basis points. The gap
earlier briefly spiked down to -7.24 when New York trade opened.
    The flattening at the short end of the yield curve can
signal a sharp slowdown or recession. Yields on three-, five-
and seven-year notes were higher than the benchmark 10-year,
trading at 3.220%, 3.255% and 3.271%, respectfully.
    The yield on two-year notes, which can herald
interest rate expectations, advanced 1.3 basis points at 3.124%,
while the yield on the 30-year Treasury bond fell
1.1 basis points to 3.294%.
    The Treasury sold $40 billion of seven-year notes at a high
yield of 3.28%, or more than 2 basis points higher than the
market when bidding closed, said Lou Brien, market strategist at
DRW Trading. The auction was poor, the same as Monday, he said.
    The breakeven rate on five-year U.S. Treasury
Inflation-Protected Securities (TIPS) was last at
2.763%.
    The 10-year TIPS breakeven rate was last at
2.487%, indicating the market sees inflation averaging about
2.6% a year for the next decade.
    The U.S. dollar five-year forward inflation-linked swap
 was last at 2.497%.

     June 28 Tuesday 2:06 PM New York / 1806 GMT
                                 Price         Current    Net
                                               Yield %    Change
                                                          (bps)
 Three-month bills               1.7475        1.7797     -0.013
 Six-month bills                 2.4775        2.5439     -0.023
 Two-year note                   99-196/256    3.1218     0.011
 Three-year note                 99-8/256      3.2203     0.006
 Five-year note                  99-250/256    3.2551     -0.003
 Seven-year note                 96-204/256    3.2707     0.003
 10-year note                    97-84/256     3.1923     -0.002
 20-year bond                    95-168/256    3.5565     -0.006
 30-year bond                    92-16/256     3.2944     -0.011

   DOLLAR SWAP SPREADS
                                 Last (bps)    Net
                                               Change
                                               (bps)
 U.S. 2-year dollar swap spread   32.75          1.50
 U.S. 3-year dollar swap spread   15.00          0.50
 U.S. 5-year dollar swap spread    3.00          0.50
 U.S. 10-year dollar swap          7.00         -0.25
 spread
 U.S. 30-year dollar swap        -24.50          0.25
 spread


 (Reporting by Herbert Lash; editing by David Evans and 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.

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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