TREASURIES-U.S. yields rise ahead of Powell speech, November jobs data

BY Reuters | ECONOMIC | 11/29/22 04:11 PM EST
    (Adds comment, late day prices)
    By Herbert Lash and Gertrude Chavez-Dreyfuss
       NEW YORK, Nov 29 (Reuters) -
    U.S. Treasury yields rose on Tuesday as investors awaited
comments this week by Federal Reserve Chairman Jerome Powell and
labor market data for November that could reinforce expectations
the U.S. central bank will slow its pace of hiking interest
rates.
        Powell will address the economy, inflation and labor on
Wednesday at the Brookings Institution, while the non-farm
payrolls report comes out Friday, with economists polled by
Reuters expecting 200,000 jobs to have been added this month.

    Investors also are waiting for data on U.S. gross domestic
product for the third quarter, Chicago manufacturing numbers and
factory activity based on the Institute for Supply Management.
    "We haven't gotten any new information, new economic data
that would significantly alter the (market's) path," said Tom
Simons, money market economist at Jefferies & Co.
        The market has been slow to incorporate "extremely
consistent" messaging from the Fed that it is not done hiking
rates, which will be in smaller increments, but that once they
get to the terminal rate it will stay there for a while, Simons
said.

        Fed funds futures have priced in a 63.5% chance of a
50-basis-point hike at the Fed's policy meeting Dec. 13-14, with
the terminal rate peaking at 5.007% next June and then falling
to 4.644% in December 2023..

        Markets believe "the Fed is going to be able to pivot
toward a more neutral level of the federal funds more quickly
than is likely to be the case," Simons said.

        The yield on 10-year Treasury notes
    rose 5 basis points
     to
    3.752
    %, while the two-year yield, which typically
moves in step with interest rate expectations,
    rose 1.5 basis points
     at
    4.486
    %.

        The yield curve measuring the gap between yields on two-
and 10-year notes remained deeply inverted at
    -73.6
     basis points. The inversion, when yields on short-dated
debt are higher than longer-dated debt, indicates a looming
recession.

        "The bond market has a pretty heavily inverted yield
curve pricing in a pretty lengthy recession with an
understanding the Fed isn't going to be there right away to
rescue the market if things slow down," Simons said.

    Investors sold Treasuries as they anticipate details about
Amazon.com Inc's (AMZN) multi-tranche corporate bond deal.
    The deal features two-, three-, five-, seven- and 10-year
notes. The initial price talk on the maturities is U.S.
Treasuries plus 45 basis points (bps, 55 bps, 85 bps, 100 bps,
and 115 bps, respectively.
    Wall Street dealers typically look to lock in borrowing
costs for corporate bonds they are underwriting. As part of that
process, a dealer sells Treasuries as a hedge to lock in the
borrowing cost on the bond issue before the deal is completed.
Once the bond is sold, the dealer buys Treasuries to exit the
"rate lock."
    "We are the low end of the range yields. When you see
corporate supply as a factor, we tend to see a little sell-off,"
said Subadra Rajappa, head of U.S. rates strategy, at Societe
Generale in New York.
        The yield on the 30-year Treasury bond was
    up 5.5 basis points
     at
    3.804
    %.

        The breakeven rate on five-year U.S. Treasury
Inflation-Protected Securities (TIPS) was last at
    2.358
    %.

        The 10-year TIPS breakeven rate was last
at
    2.267
    %, indicating the market sees inflation averaging about 2.3%
a year for the next decade.

        The U.S. dollar 5 years forward inflation-linked swap
 was last at
    2.465
    %. The swap is seen by some as a better gauge of inflation
expectations due to possible distortions caused by the Fed's
quantitative easing.

     Nov. 29 Tuesday 3:47 p.m. New York / 2047 GMT
                                               Price        Current   Net
                                                            Yield %   Change
                                                                      (bps)
 Three-month bills                             4.27         4.3771    -0.025
 Six-month bills                               4.5525       4.7245    -0.010
 Two-year note                                 100-7/256    4.4856    0.015
 Three-year note                               100-174/256  4.2524    0.022
 Five-year note                                99-194/256   3.9288    0.037
 Seven-year note                               100-28/256   3.857     0.046
 10-year note                                  103-20/256   3.7516    0.050
 20-year bond                                  99-192/256   4.0182    0.043
 30-year bond                                  103-124/256  3.804     0.055

   DOLLAR SWAP SPREADS
                                               Last (bps)   Net
                                                            Change
                                                            (bps)
 U.S. 2-year dollar swap spread                 30.75        -0.75
 U.S. 3-year dollar swap spread                 12.00        -1.00
 U.S. 5-year dollar swap spread                  4.00        -1.50
 U.S. 10-year dollar swap spread                -4.25        -1.00
 U.S. 30-year dollar swap spread               -45.00        -0.25

 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Nick
Zieminski and 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.

fir_news_article