TREASURIES-U.S. yields decline after weak economic data, but all eyes on Fed minutes

BY Reuters | ECONOMIC | 11/23/22 10:53 AM EST
       By Davide Barbuscia
       NEW YORK, Nov 23 (Reuters) - U.S. Treasury yields
declined Wednesday after some weak economic data and ahead of
the Federal Reserve's release of the minutes from its most
recent meeting, which investors will scrutinize for signals on
the direction of monetary policy.
    U.S. jobless claims increased more than expected last week,
Labor Department data showed on Wednesday. Meanwhile U.S.
business activity contracted for a fifth straight month in
November, according to the S&P Global flash U.S. Composite PMI
Output Index, which tracks the manufacturing and services
sectors.
    "The fact that the jobs numbers came in worse than expected,
leads us to believe that the Fed is accomplishing its goals,"
said Thomas Hayes, chairman and managing member of New
York-based Great Hill Capital.
    He said more data in the coming weeks could point to a
slowdown in the economy, reflecting the lagged effects of the
Federal Reserve's monetary tightening measures.
    The Fed this year has embarked on the swiftest tightening of
U.S. monetary policy in 40 years as it attempts to bring down
decades-high inflation, but Fed Chair Jerome Powell earlier this
month said that while borrowing costs will need to rise further
the central bank may raise rates in smaller increments in the
future.
    On Wednesday afternoon the Fed will release the minutes from
its most recent meeting, which investors will probe for signs of
discussions around a slowdown in the pace of interest rate
hikes, as the U.S. central bank seeks to fight inflation without
cooling the economy to the point of pushing it into a recession.
    "The dovish pivot that may or may not have actually been has
been the focus in recent weeks," Craig Erlam, senior market
analyst at OANDA, said in a note on Wednesday. "Investors may be
on the hunt for clues that they've acted prematurely, or that
there's actually more support for such a slowdown in
tightening," he said.
    Yields, which move inversely to prices, declined across the
curve on Wednesday, with the two-year note down about
4 basis points to 4.475% and benchmark 10-year bond yields
 down nearly 5 basis points to 3.711%.
    The yield curve that compares these two maturities
 widened further into negative territory to -77.3
basis points. When inverted, that part of the curve is seen as
an indicator of an upcoming recession.
      November 23 Wednesday 10:21AM New York / 1521 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             4.2225       4.3268    0.016
 Six-month bills               4.535        4.7053    0.005
 Two-year note                 100-12/256   4.4752    -0.042
 Three-year note               100-186/256  4.2368    -0.037
 Five-year note                99-232/256   3.8958    -0.043
 Seven-year note               100-80/256   3.8237    -0.048
 10-year note                  103-108/256  3.7112    -0.047
 20-year bond                  100-12/256   3.9965    -0.061
 30-year bond                  104-44/256   3.7665    -0.062

   DOLLAR SWAP SPREADS
                               Last (bps)   Net
                                            Change
                                            (bps)
 U.S. 2-year dollar swap        31.75         2.25
 spread
 U.S. 3-year dollar swap        13.25         1.50
 spread
 U.S. 5-year dollar swap         6.75         0.75
 spread
 U.S. 10-year dollar swap       -2.50         1.25
 spread
 U.S. 30-year dollar swap      -44.50         1.25
 spread

 (Reporting by Davide Barbuscia; Editing by Andrea Ricci)

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