TREASURIES-U.S. yields fall as Fed's Powell affirms slow rate hike pace starting December

BY Reuters | ECONOMIC | 11/30/22 03:03 PM EST
    (Recasts, adds Fed's Powell's remarks, fund manager comments,
bullets, updates prices)

        *
      Fed's Powell warns inflation fight is not over


        *
      Fed's peak fed funds rate slips to 4.9% after Powell's
remarks


        *
      U.S. Q3 GDP 2nd estimate revised higher to 2.9%


        *
      ADP private sector jobs for November rise less than
expected



    By Gertrude Chavez-Dreyfuss
       NEW YORK, Nov 30 (Reuters) - U.S. Treasury yields
retreated across the board on Wednesday after trading higher for
most of the session after Federal Reserve Chair Jerome Powell
struck a more dovish tone than the market expected, saying the
U.S. central bank could slow the pace of rate hikes as soon as
next month.
        Fed funds futures on Wednesday raised the chances of a
50 basis-point hike at a policy meeting next month to 89% from
83% just before Powell's comments. For the February meeting, the
rates market has factored in a 58% likelihood of another such
rate hike.
    The peak Fed funds rate slid after Powell's comments to
4.95%, seen hitting in May next year. Before his remarks, that
peak rate was at 5.05%, expected at the June meeting.

    Powell said
     on Wednesday the U.S. central bank could ease the pace of
interest rate hikes "as soon as December" but warned that the
fight against inflation is far from over.
    "Generally, the market seems to have priced in the worst of
it already and just sort of getting the event volatility out of
play is sort of helping risk assets," said John Luke Tyner,
fixed income portfolio manager at Aptus Capital Advisors in
Fairhope, Alabama.
    "This probably isn't the response that Powell is looking
for, especially since the terminal rate is moving lower. If this
was the message that Powell is trying to communicate, then this
is different from what he said in the last several meetings," he
added.
    In afternoon trading, the yield on 10-year Treasury notes
 fell 5.2 basis points to 3.697%.
    The yield on the 30-year Treasury bond slipped
1.3 bps to 3.792%.
    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 -72.7 bps, narrower
following the slew of data released earlier in the session. 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 down 4.3 bps
at 4.297%.
        U.S. yields earlier rose after data showed the world's
largest economy grew more than expected in the third quarter,
reinforcing expectations that the Fed 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.
    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. Economists
polled by Reuters had forecast private jobs increasing 200,000.
    The ADP number briefly earlier weighed on U.S. Treasury
yields.
      November 30 Wednesday 2:36PM New York / 1936 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             4.265        4.3714    -0.013
 Six-month bills               4.5425       4.7138    -0.018
 Two-year note                 100-34/256   4.4297    -0.043
 Three-year note               100-220/256  4.1872    -0.057
 Five-year note                100-8/256    3.868     -0.054
 Seven-year note               100-120/256  3.7981    -0.051
 10-year note                  103-104/256  3.7124    -0.036
 20-year bond                  99-232/256   4.0067    -0.008
 30-year bond                  103-84/256   3.8126    0.011

   DOLLAR SWAP SPREADS
                               Last (bps)   Net
                                            Change
                                            (bps)
 U.S. 2-year dollar swap        31.00        -0.25
 spread
 U.S. 3-year dollar swap        11.50        -0.50
 spread
 U.S. 5-year dollar swap         3.50         0.00
 spread
 U.S. 10-year dollar swap       -4.25         0.25
 spread
 U.S. 30-year dollar swap      -44.50         0.50
 spread

 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Nick
Zieminski and Lisa Shumaker)

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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