TREASURIES-Yields rise, next week's FOMC minutes in focus

BY Reuters | ECONOMIC | 11/18/22 03:20 PM EST
    (Adds data, comments from Fed's Collins; updates prices)
    By Karen Brettell
       NEW YORK, Nov 18 (Reuters) - U.S. Treasury yields rose
on Friday on expectations that the Federal Reserve will continue
hiking rates while the yield curve held at deeply inverted
levels on concerns that tighter policy will dent economic
growth.
    Surprisingly strong retail sales data on Wednesday scuttled
some hopes that rate hikes could be nearing an end. Yields have
tumbled since data showed softer than expected consumer and
producer price pressures for October.
    Fed officials this week have also spoken of the need to
continue raising rates in order to tame still=high inflation.
    "The market significantly overreacted to the October CPI
report, and the Fed tried very hard to push back through the
speakers," said Gennadiy Goldberg, interest rate strategist at
TD Securities in New York.
    Boston Fed President Susan Collins said on Friday that with
little evidence price pressures are waning, the Fed may need to
deliver another 75-basis point rate hike.
    St Louis Fed President James Bullard said on Thursday that
the Fed's target policy needs to rise to at least a range
between 5.00% and 5.25% from the current level of just below
4.00% to be "sufficiently restrictive" to curb inflation.
    Minutes from the Fed's November meeting released next
Wednesday could offer new insight into how high officials
ultimately expect to raise rates.
    Fed funds futures traders are pricing for the fed funds rate
to rise to 5.06% by June, from 3.83% now.
Expectations of the terminal rate had dropped to 4.89% on
Tuesday.
    "There's more tightening to go. I think markets still have
to be persuaded of that," said Goldberg.
    Data on Friday showed that U.S. existing home sales tumbled
for a record ninth straight month in October as the 30-year
fixed mortgage rate hit a 20-year high and prices remained
elevated, pushing homeownership out of the reach of many
Americans.
    The next major economic releases, however, will be jobs and
inflation data for November, which are still several weeks away.
    Benchmark 10-year yields rose to 3.816%, after
falling to 3.671% on Wednesday, the lowest since Oct. 5. They
are down from a 15-year high of 4.338% on Oct. 21.
    Two-year Treasury yields were at 4.507% and are
holding above a two-week low of 4.290% reached on Nov. 10 after
the CPI data. They have dropped from 4.883% on Nov. 4, which was
also a 15-year high.
    The inversion in the key two-year, 10-year part of the
Treasury yield curve deepened on concerns about an impending
recession. It was at minus 70 basis points,
nearing levels last reached in 2000.
    The Fed is widely expected to hike rates by an additional 50
basis points at its December 13-14 meeting.
    November 18 Friday 3:00PM New York / 2000 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             4.15         4.2503    0.016
 Six-month bills               4.4725       4.6372    0.038
 Two-year note                 99-193/256   4.5074    0.053
 Three-year note               100-158/256  4.2772    0.055
 Five-year note                100-146/256  3.9962    0.059
 Seven-year note               100-124/256  3.9193    0.047
 10-year note                  102-140/256  3.8157    0.043
 20-year bond                  98-12/256    4.1447    0.031
 30-year bond                  101-80/256   3.9251    0.036

   DOLLAR SWAP SPREADS
                               Last (bps)   Net
                                            Change
                                            (bps)
 U.S. 2-year dollar swap        32.00         0.75
 spread
 U.S. 3-year dollar swap        15.75         1.50
 spread
 U.S. 5-year dollar swap         5.50         1.75
 spread
 U.S. 10-year dollar swap       -2.00         1.25
 spread
 U.S. 30-year dollar swap      -43.75         1.25
 spread


 (Reporting by Karen Brettell; Editing by Emelia
Sithole-Matarise 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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