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Author of the article:
Reuters
Gertrude Chavez-Dreyfuss
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NEW YORK — US Treasury yields fell
choppy trading on Wednesday, followed by losses on Wall Street,
after poor US housing data added to growing concerns over the slowdown
amid aggressive monetary tightening by the Federal Reserve.
That said, a steep path for US interest rates remained the
prevailing market consensus.
“We see growth slowing in the US. The question is how?
much will it slow down and will it actually start?
continued sluggishness,” said Bill Merz, head of US fixed income
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Bank wealth management in Minneapolis.
“That’s a big if, and right now we’re just seeing signs of…
softening of the data and tighter financial conditions.”
The Fed tries to temper demand so that inflation falls,
and some of it works through expectations rather than the
actual act of walking fares, Merz said.
“Such extreme rate hikes are expected that the current
activity begins to slow down. But we don’t really know if we’re there
not that point yet. We have not seen enough evidence that
expectations are starting to influence interest rate hikes
point,” he added.
A solid US 20-year bond auction also added to bids on
treasure chests.
US benchmark 10-year yields hit a weekly high of 3.015%
amid ultra-hawkish comments from Fed Chair Jerome Powell on
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Tuesday. But yields fell below 3% after US housing weakness
starts number.
Powell said on Tuesday the Fed would raise interest rates if…
high as needed to curb a rise in inflation, he said
threatens the foundation of the economy.
“If that means going beyond commonly understood levels of
‘neutral’ we won’t hesitate to do that,” Powell said to a wall
Street Journal event, referring to the speed at which economic
activity is not encouraged or restricted.
Interest rate futures have priced in a Fed Funds rate of
2.82% at the end of this year, compared to the current level
of 0.83%. Futures have also factored in about 197 basis points
of cumulative increases in 2022.
The decline in US home starts and construction permits amid
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rising mortgage rates weighed on government bond yields as equities fell.
US housing market fell 0.2% to an annualized rate of 1,724
million units last month, with March data revised lower to a
of 1.728 million units.
Permits for future housing construction in April also fell by 3.2%.
In afternoon trading, 10-year yields fell 7 basis points to
2.896%, while the 30-year bond yield
decreased by 8 basis points to 3.08%.
At the front of the curve is the US two-year yield, which
sensitive to Fed expectations, were down 2.6 basis
points at 2.671%.
The yield curve has flattened further, with the spread
between US two- and 10-year yields cut to 22 bp
†
Wednesday’s 20-year auction in the US was well received and stopped
due to a high efficiency of 3.290%, lower than the expected rate at
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the offer period. Yet this was the highest yield ever
as the maturity was reintroduced in May 2020.
The bid-to-cover ratio, a measure of demand, of 2.5 was
lower than last month’s auction.
May 18 Wednesday 15:01 New York/1901 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 1.0225 1.0394 -0.031
Half-yearly accounts 1.5 1.5325 -0.015
Two-year bond 99-174/256 2.6694 -0.029
Three-year bond 99-190/256 2.8405 -0.041
Five-year bond 99-84/256 2.8965 -0.049
Seven-year bond 99-184/256 2.9199 -0.075
10-Year Bond 99-224/256 2.8895 -0.081
20-year bond 86-244/256 3.2776 -0.093
30-Year Bond 96-40/256 3.0721 -0.092
DOLLAR SWAP SPREAD
Last (bps) Net
Change
(bps)
US 2-Year Dollar Swap 27.75 0.25
scatter
US 3-Year Dollar Swap 13.50 1.25
scatter
US 5-Year Dollar Swap 3.00 0.00
scatter
US 10-Year Dollar Swap 5.75 -0.25
scatter
US 30-Year Dollar Swap -27.00 -1.00
scatter
(Reporting by Gertrude Chavez-Dreyfuss; editing by Jonathan
oats)
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This post US yields fall as growth concerns mount due to aggressive Fed
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