TREASURIES-U.S. yields lower after soft housing data

BY Reuters | TREASURY | 11/27/23 11:03 AM EST

By Chuck Mikolajczak

NEW YORK, Nov 27 (Reuters) - U.S. Treasury yields were lower on Monday, with the benchmark U.S. 10-year Treasury yield extending declines after a weaker-than-expected report on the housing market.

New home sales dropped 5.6% to a seasonally adjusted annual rate of 679,000 units last month, the Commerce Department said on Monday, below the 723,000 units estimate of economists polled by Reuters. September's sales pace was revised lower to 719,000 units from the previously reported 759,000 units.

"It's the economic data and central bank policy and whatever information comes out within those two areas, those are going to be the areas that are going to move Treasury yields up or down at this point," said Jim Barnes, director of fixed income at Bryn Mawr Trust in Berwyn, Pennsylvania. "You're going to see yield somewhat range bound, but those to me would be the two factors and today (Monday) it's the weak economic data that has investors attention."

The yield on the benchmark U.S. 10-year Treasury note on Monday fell 5 basis points to 4.429%.

Despite a climb last week, the 10-year yield is on track for its biggest monthly decline since March, as investors largely believe the Federal Reserve is done with its interest rate hike cycle and attempts to price in when the central bank will instead cut rates.

Softening economic data, including a reading on inflation two weeks ago, has fueled expectations the Fed will hold rates at their current level, while pricing in a better than 50% chance of a rate cut of at least 25 basis points in May, according to CME's FedWatch Tool.

The yield on the 30-year bond fell 5 basis points to 4.565%.

European Central Bank (ECB) President Christine Lagarde said on Monday that euro zone inflation pressures are easing but wage growth is still strong, so the ECB's fight to contain price growth is not yet done.

Federal Reserve Chair Jerome Powell is scheduled to speak on Friday.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a negative 50.2 basis points. An inverted yield curve is seen as a reliable signpost of an upcoming recession.

The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, fell 3 basis points to 4.929%.

More supply will come to the market this week as Treasury auctions $54 billion in 2-year notes and $55 billion in 5-year notes. On Tuesday, Treasury will auction $39 billion in 7-year notes.

The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.177% after closing at 2.290% on Friday, its highest close in nearly two weeks.

The 10-year TIPS breakeven rate was last at 2.24%, indicating the market sees inflation averaging about 2.2% a year for the next decade.

(Reporting by Chuck Mikolajczak; Editing by Will Dunham)

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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