U.S. Treasury yields steady on slower growth outlook

NEW YORK — U.S. Treasury yields were

little changed on Thursday after the benchmark 10-year note hit

a fresh six-week low, with inflation fears continuing to

dissipate as economic data and corporate announcements point to

slower growth.

The yield on 10-year Treasury notes rose 0.9

basis points to 2.756% after falling to 2.706% early in the

session.

Expectations were high a few weeks ago that the Federal

Reserve would aggressively hike interest rates to tackle

inflation, but recent data has suggested a weakening economy,

said Lou Brien, market strategist at DRW Trading.

“The drift of the data lately has been on the weak side,

notably those new home sales were pretty darn bad,” he said.

New home sales plunged a more-than-expected 16.6% in April

to a seasonally adjusted annual rate of 591,000 units, the

Commerce Department said on Tuesday.

“The market has got a little too far over its skis, as far

as how the economy was going to go and how the Fed was going to

go,” Brien said.

Minutes released on Wednesday from a Fed policy meeting

three weeks ago suggest the Fed could pause hiking rates in

September after two hikes of 50 basis points each in June and

July put its policy rate close to neutral.

The market has been waiting for data at the macro level to

confirm slower economic growth, but micro data from corporations

is providing ample evidence, said Steven Ricchiuto, U.S. chief

economist at Mizuho Securities USA LLC.

“A lot of what’s happening are corporate announcements.

Apple today, don’t ignore it,” Ricchiuto said.

Apple Inc plans to keep iPhone production for 2022

roughly flat at about 220 million units, Bloomberg News

reported, as China’s COVID-19 curbs, global supply-chain issues

and cooling demand hurt smartphone makers.

“People are buying in to the view that the economy is

getting hit, and the economy getting hit is going to bring down

inflation,” Ricchiuto said.

Two-year Treasury yields, which typically move in

step with interest rate expectations, fell 0.8 basis point to

2.494%, a sharp drop from a more than three-year high of 2.844%

in early May.

The Treasury Department sold $42 billion of seven-year notes

at a high yield of 2.777%. The auction was very strong with the

high yield more than 2 basis points lower than the yield at the

bidding deadline, Brien said.

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 26.0 basis points.

The yield on the 30-year Treasury bond was up

1.9 basis points at 2.984%.

The breakeven rate on five-year U.S. Treasury

Inflation-Protected Securities (TIPS) was last at

2.989%.

The 10-year TIPS breakeven rate was last at

2.649%, indicating the market sees inflation averaging about

2.6% a year for the next decade.

The U.S. dollar five years forward inflation-linked swap

, seen by some as a better gauge of inflation

expectations due to possible distortions caused by the Fed’s

quantitative easing, was last at 2.493%.

May 26 Thursday 3:49 PM New York / 1949 GMT

Price Current Net

Yield % Change

(bps)

Three-month bills 1.045 1.0623 -0.011

Six-month bills 1.47 1.5016 -0.002

Two-year note 100-3/256 2.494 -0.008

Three-year note 100-80/256 2.6396 0.009

Five-year note 99-144/256 2.7192 0.003

Seven-year note 100-176/256 2.7651 0.004

10-year note 101-8/256 2.7559 0.009

20-year bond 101-24/256 3.1755 0.028

30-year bond 97-216/256 2.9843 0.019

DOLLAR SWAP SPREADS

Last (bps) Net

Change

(bps)

U.S. 2-year dollar swap 30.25 2.50

spread

U.S. 3-year dollar swap 16.00 1.00

spread

U.S. 5-year dollar swap 4.75 1.25

spread

U.S. 10-year dollar swap 7.00 0.50

spread

U.S. 30-year dollar swap -22.75 0.50

spread

(Reporting by Herbert Lash in New York

Editing by Jonathan Oatis and Matthew Lewis)