TREASURIES-U.S. yields slide as recession fears keep kicking

BY Reuters | TREASURY | 06/30/22 02:47 PM EDT
    (Adds comment, fresh prices)
    By Herbert Lash
    NEW YORK, June 30 (Reuters) - Treasury yields slid for a
third straight day on Thursday after soft U.S. consumer spending
data and still elevated consumer prices kept concerns alive that
the Federal Reserve will brake growth more than needed to curb
rising inflation.
    In a sign of a slowing U.S. economy, consumer spending rose
a less-than-expected 0.2% last month, the Commerce Department
said. It also lowered data for April to show outlays increased
0.6% instead of 0.9% as previously reported.
    But inflation maintained its upward trend in May, with the
personal consumption expenditures (PCE) price index rising 0.6%
after gaining 0.2% in April. The PCE price index climbed 6.3% on
an annual basis after advancing by the same margin in April, or
more than triple the Fed's target of 2% yearly inflation.
    "The data were, on the margin, a little bit disappointing,"
said Kim Rupert, managing director of global fixed income at
Action Economics in San Francisco. "Clearly everybody is very
nervous about a recession with the central banks going all-in on
tackling price pressures."
    The yield on 10-year Treasury notes fell 10.4
basis points to 2.989% as safe-haven buying at the long end
pushed prices up and yields lower. Yields on the benchmark
Treasury note are up about 150 basis points year-to-date, the
largest first-half increase since the first six months of 1994.
    The gap between yields on two- and 10-year Treasury notes
, a commonly used metric to indicate a potential
recession when rates at the short end of the yield curve rise
above the long end, was 4.6 basis points after flattening to
3.08 basis points in afternoon trading.
    The two-year U.S. Treasury yield, which often
moves in step with rate expectations, skidded 11.4 basis points
to 2.939%, the first time it's been under 3% this week.
    Rates in the middle of the curve already are inverted, or
higher than the benchmark 10-year, with the three-, five- and
seven-year notes at 2.997%, 3.021% and 3.048%, respectively.
    Investors are trying to determine when the Fed eases its
rate hiking cycle once policymakers see inflation is under
control, said Steven Ricchiuto, U.S. chief economist at Mizuho
Securities in New York.
    "How long is the lag to the Fed saying we got inflation
clearly coming down in the proper direction, to the proper
magnitude, that maybe we can extend out the timing of the rate
hikes, not reverse them," Ricchiuto said.
    The market's view of how to rebalance portfolios at quarter
end flipped this week as the worst of the equity downturn was
believed to be over, said George Goncalves, head of U.S. macro
strategy at MUFG Securities Americas Inc in New York.
    "What we got is equities have not performed well, and fixed
income has still gathered a decent bid the last two days" as
global dynamics, especially concerns about Europe, impact the
U.S. outlook, Goncalves said.
    "It's largely the moves in European rates and the spill-over
into U.S. fixed income," he said. "They're probably going to
head into a recession and probably before we do, or at the same
    The yield on the 30-year Treasury bond was down
7.8 basis points to 3.134%.
    The breakeven rate on five-year U.S. Treasury
Inflation-Protected Securities (TIPS) was last at
    The 10-year TIPS breakeven rate was last at
2.373%, indicating the market sees inflation averaging about
2.4% a year for the next decade.
    The U.S. dollar five-year forward inflation-linked swap
, seen by some as a better gauge of inflation
expectations, was last at 2.350%.

     June 30 Thursday 2:22 PM New York / 1822 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.67         1.7003    -0.057
 Six-month bills               2.44         2.5046    -0.010
 Two-year note                 100-30/256   2.9391    -0.114
 Three-year note               99-168/256   2.9971    -0.131
 Five-year note                101-14/256   3.021     -0.132
 Seven-year note               101-68/256   3.0478    -0.122
 10-year note                  99-8/256     2.9888    -0.104
 20-year bond                  97-236/256   3.3944    -0.069
 30-year bond                  95           3.1339    -0.078

                               Last (bps)   Net
 U.S. 2-year dollar swap        32.25        -2.00
 U.S. 3-year dollar swap        13.00        -1.75
 U.S. 5-year dollar swap         3.50        -0.25
 U.S. 10-year dollar swap        7.75         0.00
 U.S. 30-year dollar swap      -23.00         0.75

 (Reporting by Herbert Lash
Editing by Mark Potter and Nick Zieminski)

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