TREASURIES-U.S. yields rise as GDP data backs continued Fed rate hikes

BY Reuters | ECONOMIC | 11/30/22 09:32 AM EST
       By Gertrude Chavez-Dreyfuss
       NEW YORK, Nov 30 (Reuters) - U.S. Treasury yields rose
on Wednesday after data showed the world's largest economy grew
more than expected in the third quarter, reinforcing
expectations that the Federal Reserve will continue to raise
interest rates well into next year, though at a slightly slower
pace.
    Gross domestic product expanded at a 2.9% annualized rate in
the third quarter, according to the government's second
estimate, higher than the preliminary number of 2.6%. The
economy had contracted at a 0.6% rate in the second quarter.
    The second estimate was also higher than economists'
forecast of 2.7%, a Reuters poll showed.
    "A positive-growth backdrop and a focus on lowering
inflation will keep the Fed on track to raise rates into
restrictive territory over coming months," wrote Rubeela
Farooqi, chief U.S. economist at High Frequency Economics, in a
research note after the GDP data.
    The report followed U.S. private sector employment data,
which showed new jobs created rose less than expected in
November, giving the Fed some flexibility to ease the pace of
tightening.
    U.S. private employment increased by 127,000 jobs in
November, the ADP National Employment report showed. Data for
October was unrevised to show 239,000 jobs created. Economists
polled by Reuters had forecast private jobs increasing 200,000.
    The ADP number briefly weighed on U.S. Treasury yields.
    "ADP private employment tally was much weaker than expected
and with other high-frequency labor market metrics suggests
deteriorating labor market," said Stan Shipley, fixed-income
strategist at Evercore ISI in New York.
    Fed funds futures on Wednesday priced in an 81% chance of a
50 basis-point hike at a policy meeting this month, compared
with a 63.5% probability on Tuesday. For the February meeting,
the rates market has factored in a 72.5% likelihood of another
such rate hike.
    In mid-morning trading, the yield on 10-year Treasury notes
 was up 2.2 basis points at 3.770%.
        The yield on the 30-year Treasury bond was
    up 2.4 b
    ps
     at
    3.826
    %.

    A widely-tracked part of the U.S. Treasury yield curve
measuring the gap between yields on two- and 10-year Treasury
notes remained inverted at -76.3 basis points. The
inversion of this curve typically precedes recession.
    The two-year U.S. Treasury yield, which typically
moves in step with interest rate expectations, was up 5.8 bps at
4.531%.
          November 30 Wednesday 9:16AM New York / 1416 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             4.27         4.3765    -0.007
 Six-month bills               4.5825       4.7563    0.024
 Two-year note                 99-243/256   4.5268    0.054
 Three-year note               100-150/256  4.2861    0.042
 Five-year note                99-156/256   3.9619    0.040
 Seven-year note               99-248/256   3.8801    0.031
 10-year note                  102-244/256  3.7664    0.018
 20-year bond                  99-152/256   4.0297    0.015
 30-year bond                  103-40/256   3.8221    0.020

   DOLLAR SWAP SPREADS
                               Last (bps)   Net
                                            Change
                                            (bps)
 U.S. 2-year dollar swap        30.75        -0.50
 spread
 U.S. 3-year dollar swap        11.50        -0.50
 spread
 U.S. 5-year dollar swap         3.75         0.25
 spread
 U.S. 10-year dollar swap       -4.25         0.25
 spread
 U.S. 30-year dollar swap      -44.75         0.25
 spread

 (Reporting by Gertrude Chavez-Dreyfuss
Editing by 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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