U.S. yields flat to lower as markets cautiously look to Jackson Hole meeting

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NEW YORK — U.S. Treasury yields were

little changed to slightly lower on Thursday after hitting

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multi-week highs the previous session, amid uncertainty as to

what Federal Reserve Chair Jerome Powell might say when he

speaks on Friday at a global central bank conference in Jackson

Hole, Wyoming.

While the bond market expects Powell to stick to his message

of bringing down U.S. inflation to the Fed’s 2% target, big

players such as Goldman Sachs expects the central bank chief to

reiterate the case for slowing the pace of tightening, similar

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to what he said in his July news conference.

U.S. yields from two-year notes to 30-year bonds hit peaks

on Wednesday of anywhere between five to 10 weeks, with market

participants positioning for hawkish comments from Powell.

“What continues to make sense to us is to raise the fed

funds target to the 3.50% to 3.75% range, either late this year

or early next year and then reassess its progress since monetary

policy works with lags,” said Joseph Kalish, chief global macro

strategist at Ned Davis Research.

“Talk of rate cuts next year is premature, but

understandable,” he added.

Eurodollar futures have priced in at least one rate cut

between March and December 2023, with the spread

between the two contracts inverted at roughly -40 basis points

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on Thursday. The peak fed funds rate is seen at 4% in March next

year, eurodollar futures showed.

In late morning trading, the yield on benchmark 10-year

Treasury notes was down 0.4 bps at 3.102%.

The 10-year yield briefly rose after data showed the U.S.

economy contracted at a moderate pace of a 0.6% annualized rate

in the second quarter, higher than the first gross domestic

product reading for the quarter. That 0.6% fall in GDP was an

upward revision from the previously estimated 0.9% pace of

decline. The economy contracted at a 1.6% rate in the first


U.S. 30-year bond yields fell 1.5 bps to 3.305%.

A closely watched part of the U.S. Treasury yield curve

measuring the gap between yields on two- and 10-year Treasury

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notes, stayed inverted at -28.4 bps. This curve has

been inverted since early July.

An inversion of this yield curve is typically a precursor to

recession, predicting eight of the last nine downturns.

The two-year U.S. Treasury yield, which tracks

the U.S. rate outlook, was down 0.2 bps at 3.384%.

Bond market measures of inflation expectations have also


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

Inflation-Protected Securities (TIPS) rose to a

session peak of 2.9715%, the highest since mid-June.

The U.S. dollar 5 years forward inflation-linked swap

, seen by some as a better gauge of inflation

expectations, also hit its highest since mid-June of 2.7205%.

Fed funds futures have now priced in a 60.5% chance of a

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75-bps rate hike next month, up from about 45% on Tuesday. The

fed funds rate is seen hitting 3.6% by the end of the year

, compared with the current rate OF 2.33%.

Also on Thursday, the U.S. Treasury will auction of $37

billion in seven-year notes. Analysts expect soft demand for the

note given the lackluster results for the five-year and two-year

note sales this week.

August 25 Thursday 10:49AM New York / 1449 GMT

Price Current Net

Yield % Change


Three-month bills 2.73 2.7871 0.007

Six-month bills 3.1225 3.2164 0.002

Two-year note 99-190/256 3.3844 -0.002

Three-year note 99-64/256 3.3923 0.000

Five-year note 99-152/256 3.2136 0.007

Seven-year note 96-120/256 3.197 0.000

10-year note 96-252/256 3.1039 -0.002

20-year bond 97-168/256 3.5397 -0.016

30-year bond 94-52/256 3.3063 -0.014


Last (bps) Net



U.S. 2-year dollar swap 32.00 -0.75


U.S. 3-year dollar swap 12.75 -0.50


U.S. 5-year dollar swap 6.25 2.50


U.S. 10-year dollar swap 7.25 -0.50


U.S. 30-year dollar swap -30.00 -0.25


(Reporting by Gertrude Chavez-Dreyfuss

Editing by Nick Zieminski)



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