TREASURIES-Yields fall as Fed meeting minutes affirm slower rate hikes

BY Reuters | ECONOMIC | 11/23/22 03:38 PM EST
    (Recasts with Fed meeting minutes; adds quotes, details;
updates prices)
    By Karen Brettell
       NEW YORK, Nov 23 (Reuters) - U.S. Treasury yields fell
on Wednesday after the Federal Reserve's November meeting
minutes showed a "substantial majority" of policymakers agreed
it would "likely soon be appropriate" to slow the pace of
interest rate hikes.
    The readout of the Nov. 1-2 meeting, at which the Fed raised
its policy rate by three-quarters of a percentage point for the
fourth straight time, showed officials were largely satisfied
they could stop front-loading the rate increases and move in
smaller, more deliberate steps.
    The minutes also showed an emerging debate within the Fed
over the risks the rapid policy tightening could pose to
economic growth and financial stability, even as policymakers
acknowledged little demonstrable progress had been made on
inflation and that rates still needed to rise.
    "It's the same message that was in the policy statement,
it's the same message that was in Powell's press conference and
the same message that has been in the speeches since then, which
is that they are going to raise rates at least a little bit more
... and rates are going to end up higher than they thought,"
said Thomas Simons, a money market economist at Jefferies in New
York.
    Yields fell despite the minutes showing no major surprises.
    Some of the move was likely due to thin trading conditions a
day before the U.S. Thanksgiving holiday, said Simons. Some
investors might also be buying bonds to get an early start on
month-end rebalancing.
    Benchmark 10-year note yields fell five basis
points on the day to 3.711%. Two-year yields dipped
three basis points to 4.490%.
    The closely watched two-year, 10-year part of the yield
curve was last at minus 78 basis points, after
reaching minus 86 basis points.
    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. How high rates end up, however, will
remain dependent on data.
    Yields had dipped early on Wednesday after data showed
jobless claims increased more than expected last week.
    "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.
    More releases in the coming weeks could point to an economic
slowdown, reflecting the lagging effects of the Fed's monetary
tightening measures, he added.
    Other data on Wednesday showed resilience in business
spending on equipment, and a contraction in the manufacturing
and services sectors. New home sales also rose in October.
      November 23 Wednesday 2:50 p.m. New York / 1950 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             4.21         4.3139    0.003
 Six-month bills               4.5325       4.7026    0.003
 Two-year note                 100-5/256    4.4897    -0.027
 Three-year note               100-184/256  4.2396    -0.034
 Five-year note                99-226/256   3.901     -0.038
 Seven-year note               100-80/256   3.8237    -0.048
 10-year note                  103-108/256  3.7112    -0.047
 20-year bond                  100-80/256   3.9771    -0.080
 30-year bond                  104-168/256  3.7403    -0.088

   DOLLAR SWAP SPREADS
                               Last (bps)   Net
                                            Change
                                            (bps)
 U.S. 2-year dollar swap        31.25         1.75
 spread
 U.S. 3-year dollar swap        13.25         1.50
 spread
 U.S. 5-year dollar swap         6.50         0.50
 spread
 U.S. 10-year dollar swap       -3.25         0.50
 spread
 U.S. 30-year dollar swap      -44.50         1.25
 spread

 (Additional reporting by Davide Barbuscia in New York; Editing
by Richard Chang)

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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