TREASURIES-U.S. yields rise as investors focus on growth ahead of Fed meeting

    (Adds context, details, updates prices)
    By Davide Barbuscia
       NEW YORK, Jan 23 (Reuters) - U.S. Treasury yields kept
creeping up on Monday, further eroding a recent bond rally that
some investors think was overdone in reflecting fears that the
U.S. economy may soon enter a recession.
    U.S. bond yields dropped to four-month lows on Thursday last
week on expectations that the Federal Reserve, which will hold
its next rate-setting meeting on Jan. 31-Feb. 1, will be forced
to pivot to a more dovish policy if the U.S. economy shrinks
this year, as many fear.
    But yields - which move inversely to prices - started rising
on Friday, and on Monday they kept climbing, with the benchmark
10-year Treasury yield and two-year yields
 up about four and five basis points, respectively, to
3.524% and 4.238%.
    "People started to price out the recession," said Zhiwei
Ren, managing director and portfolio manager at Penn Mutual
Asset Management. "The market consensus is that we're switching
from a recession in Q1-Q2 to a soft landing ... so if there's no
recession, rates don't have to go down a lot," he said.
    A soft landing scenario is one in which the Fed manages to
tame inflation without pushing the economy into a recession.
    Still, clouding the economic outlook, a gauge of future U.S.
economic activity tumbled for a 10th straight month in December:
The Conference Board on Monday said its Leading Economic Index
slid 1.0% in December following a downwardly revised decline of
1.1% in November. The decline exceeded all 22 forecasts in a
poll of economists by Reuters, which had a median expectation of
a decline of 0.7%.
    Investors will now be looking at the Commerce Department's
advance release of fourth-quarter gross domestic product on
Thursday for further clues on the impact of higher interest
rates on the economy. The data is expected to confirm that the
U.S. economy ended the year on a positive note, Tiffany Wilding,
North American economist at PIMCO, and Allison Boxer, an
economist at PIMCO, said in a note.
        The Fed raised its benchmark overnight interest rate by
4.25 percentage points last year. The rapid tightening of
monetary policy - the fastest since the 1980s - has led
investors to weigh inflation concerns against recessionary
fears, with markets fluctuating between the two.

    Fed officials indicated last week that the U.S. central bank
may scale back to slower rate hikes amid signs that hot
inflation is cooling off, and Federal Reserve Vice Chair Lael
Brainard said the chances of a soft landing appeared to be
growing as price pressures have been declining against a
backdrop of moderate growth.
    The remarks came ahead of a communications blackout which
will last until the Jan. 31-Feb. 1 meeting, at the end of which
the Fed is largely expected to raise rates by 25 basis points.
    For Steven Abrahams, senior managing director at Amherst
Pierpont Securities, despite short-term volatility, Treasury
yields will likely continue to be on a downward path this year
as the market gets more clarity on the path of inflation and
monetary policy.
    Uncertainty around the U.S. debt ceiling, however, will
likely keep investors on their toes.
    "I think a showdown over the debt ceiling puts a floor on
how low volatility can go until the debt ceiling issue is
resolved, and that might not be until July, August or beyond,"
he said.
      January 23 Monday 3:00PM New York / 2000 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             4.555        4.6691    0.007
 Six-month bills               4.6575       4.8329    0.005
 Two-year note                 100-5/256    4.238     0.055
 Three-year note               99-240/256   3.8971    0.059
 Five-year note                101-30/256   3.6252    0.058
 Seven-year note               101-216/256  3.5721    0.050
 10-year note                  104-240/256  3.5246    0.041
 20-year bond                  102-160/256  3.8097    0.032
 30-year bond                  105-136/256  3.6922    0.036

   DOLLAR SWAP SPREADS
                               Last (bps)   Net
                                            Change
                                            (bps)
 U.S. 2-year dollar swap        24.50        -0.50
 spread
 U.S. 3-year dollar swap        14.00         0.25
 spread
 U.S. 5-year dollar swap         4.00        -0.50
 spread
 U.S. 10-year dollar swap       -4.25        -0.50
 spread
 U.S. 30-year dollar swap      -41.00        -0.75
 spread

 (Reporting by Davide Barbuscia; editing by Jonathan Oatis and
Paul Simao)