TREASURIES-Yields tumble as recession fears mount

BY Reuters | TREASURY | 07/05/22 09:35 AM EDT
    (Adds quotes, details; updates prices; changes byline; previous
LONDON)
    By Karen Brettell
    NEW YORK, July 5 (Reuters) - Benchmark U.S. Treasury yields
tumbled on Tuesday and a key part of the yield curve inverted
for the first time in three weeks as concerns about economic
growth dented risk appetite and increased demand for the safe
haven U.S. debt.
    Yields have dropped from the highest levels in more than
10-years as investors worry that the Federal Reserve's
aggressive rate hikes meant to tackle soaring inflation will
send the U.S. economy into a recession.
    Investors have also pared back expectations on how high the
U.S. central bank will raise its benchmark rate as concerns
about an economic downturn increase.
    "It seems like the recession warning bells continue to ring
a little bit louder each day," said Thomas Simons, a money
market economist at Jefferies in New York. That said, "I think
that the yield curve can remain inverted for some time before
the Fed actually does change course on policy."
    The two-year, 10-year part of the Treasury yield curve
reinverted on Tuesday, a move that is seen as a reliable
indicator that a recession will follow in one-to-two years.

    The two-year, five-year part of the curve also inverted for
the first time since Feb. 2020, another indicator that an
economic downturn is likely.
    Benchmark 10-year yields were last at 2.816%, just above a
one-month low of 2.791% reached on Friday. They have fallen from
3.498% on June 14, the highest since April 2011.
    Two-year Treasury yields were at 2.800%, after hitting
2.729% on Friday, the lowest since June 7. They have fallen from
3.456% on June 14, which was the highest since November 2007.

    Fed funds futures traders are now pricing for the Fed's
benchmark rate to peak at 3.29% in February, down from
expectations before the Fed's June 14-15 meeting that it would
increase to around 4% by May. It is currently 1.58%.

    The Fed will release minutes from its June meeting on
Wednesday, which will be scrutinized for any new clues on how
large rate hikes are likely to be over the coming months. The
Fed is widely expected to hike rates by 75 basis points for the
second meeting in a row when it meets on July 26-27.
    The next major U.S. economic release will be Friday's jobs
report for June.

    July 5 Tuesday 9:11AM New York / 1311 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.6875       1.7178    0.008
 Six-month bills               2.4625       2.5271    0.018
 Two-year note                 100-98/256   2.8001    -0.045
 Three-year note               100-54/256   2.7995    -0.076
 Five-year note                102-18/256   2.8019    -0.096
 Seven-year note               102-128/256  2.8526    -0.088
 10-year note                  100-128/256  2.8163    -0.088
 20-year bond                  99-16/256    3.3146    -0.065
 30-year bond                  96-92/256    3.0618    -0.068

   DOLLAR SWAP SPREADS
                               Last (bps)   Net
                                            Change
                                            (bps)
 U.S. 2-year dollar swap        27.25        -3.00
 spread
 U.S. 3-year dollar swap        10.75        -0.75
 spread
 U.S. 5-year dollar swap         3.75         0.50
 spread
 U.S. 10-year dollar swap        7.50         0.00
 spread
 U.S. 30-year dollar swap      -24.00         0.00
 spread



 (Additional reporting by Saikat Chatterjee in London, Editing
by Alexandra Hudson)

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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