TREASURIES-Most U.S. yields inch higher at start of holiday-shortened week

BY Reuters | ECONOMIC | 11/21/22 03:56 PM EST
    (Adds details, trader quote, updates prices)
    By Davide Barbuscia and David Randall
       NEW YORK, Nov 21 (Reuters) -
    U.S. Treasury yields across most maturities inched higher at
the start of a holiday-shortened week on Monday amid
expectations of further Federal Reserve interest rate hikes,
while the yield curve remained deeply inverted on concerns the
central bank's tightening will weigh on economic growth.

        Longer-duration Treasury yields, such as those on 20-
 and 30-year Treasuries, dipped slightly,
but yields on bonds with maturities ranging from two to 10 years
climbed, as investors continued to re-price expectations for how
high the Fed will hike rates as it attempts to bring inflation
down from close to 40-year highs.

        "What you continue to see is the higher terminal rate on
the front end that has rebounded since the CPI (consumer price
index) print two weeks ago has continued to pressure long-end
rates," said John Luke Tyner, a fixed income analyst and trader
at Aptus Capital Advisors.

        Short-term bond yields, which move inversely to prices,
tend to more closely reflect monetary policy expectations than
longer-dated ones, which are more indicative of broader market
and economic concerns.

        Fed funds futures traders on Monday were pricing the
central bank's policy rate to rise to a high of 5.07% by June,
up from expectations of about 4.9% earlier this month, when
    data
     showed softer-than-expected consumer and producer price
pressures for October.

        Since then, however, several Fed officials have stressed
the need to continue raising rates in order to tame stubbornly
high inflation. On Monday, San Francisco Fed President Mary Daly
    said
     she was still expecting the U.S. central bank to push rates
higher and that it will likely lift its interest rate target to
around 5%. The current federal funds rate stands at between
3.75% and 4.00%.

    The bond market will be closed on Thursday for the
Thanksgiving holiday and will close early on Friday.
    The Treasury market will likely remain volatile over the
remaining weeks of the year as seasonal liquidity dries up, said
Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets.
    "We're anticipating choppy price action characterized by
disproportionately large moves in U.S. rates based on flows and
developments that in more typical conditions wouldn't warrant a
response," he said.
    The yield on 10-year Treasury notes was up
marginally, at 3.826%, while the yield on the 30-year Treasury
bond was down 2 basis points at 3.907%.
        The two-year U.S. Treasury yield, which
typically moves in step with interest rate expectations, was up
nearly 4 basis points at 4.548%.

        A closely watched part of the U.S. Treasury yield curve
measuring the gap between yields on two- and 10-year Treasury
notes, seen as an indicator of economic
expectations, was at -72.3 basis points.

        The Treasury Department sold $42 billion in two-year
notes on Monday at a high yield of 4.505% and $43 billion in
five-year notes at a high rate of 3.974%.

  November 21 Monday 3:00PM New York / 2000 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             4.1175       4.2162    -0.034
 Six-month bills               4.475        4.6392    0.002
 Two-year note                 99-174/256   4.548     0.038
 Three-year note               100-134/256  4.3107    0.031
 Five-year note                100-128/256  4.0119    0.014
 Seven-year note               100-104/256  3.9322    0.010
 10-year note                  102-116/256  3.8269    0.009
 20-year bond                  98-32/256    4.1388    -0.008
 30-year bond                  101-160/256  3.9075    -0.020

   DOLLAR SWAP SPREADS
                               Last (bps)   Net
                                            Change
                                            (bps)
 U.S. 2-year dollar swap        31.00        -1.00
 spread
 U.S. 3-year dollar swap        15.25        -0.25
 spread
 U.S. 5-year dollar swap         6.00         0.50
 spread
 U.S. 10-year dollar swap       -1.25         0.75
 spread
 U.S. 30-year dollar swap      -43.75         0.00
 spread

 (Reporting by Davide Barbuscia and David Randall; Editing by
Bernadette Baum and Paul Simao)

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.

fir_news_article