U.S. yields slide as data keeps recession fears alive


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NEW YORK — Treasury yields slid for a

third straight day on Thursday after soft U.S. consumer spending

data and still elevated consumer prices kept concerns alive that

the Federal Reserve will brake growth more than needed to curb

rising inflation.

In a sign of a slowing U.S. economy, consumer spending rose

a less-than-expected 0.2% last month, the Commerce Department

said. It also lowered data for April to show outlays increased

0.6% instead of 0.9% as previously reported.

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But inflation maintained its upward trend in May, with the

personal consumption expenditures (PCE) price index rising 0.6%

after gaining 0.2% in April. The PCE price index climbed 6.3% on

an annual basis after advancing by the same margin in April, or

more than triple the Fed’s target of 2% yearly inflation.

“The data were on the margin a little bit disappointing,”

said Kim Rupert, managing director of global fixed income at

Action Economics in San Francisco. “Clearly everybody is very

nervous about a recession with the central banks going all-in on

tackling price pressures.”

The yield on 10-year Treasury notes fell 8.9

basis points to 3.004% as safe-haven buying at the long end

pushed prices up and yields lower.

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The gap between yields on two- and 10-year Treasury notes

, a commonly used metric to indicate a potential

recession when rates at the short end of the yield curve rise

above the long end, was just 3.7 basis points after flattening

to 3.14 basis points before the PCE data.

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

moves in step with rate expectations, slid 8.7 basis points to

2.966%, the first time it’s been under 3% this week.

Rates in the middle of the curve already are inverted, or

higher than the benchmark 10-year, with the three-, five- and

seven-year notes at 3.019%, 3.041% and 3.068%, respectively.

Investors are trying to determine if the Fed eases its rate

hiking cycle once inflation is seen being under control, said

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Steven Ricchiuto, U.S. chief economist at Mizuho Securities in

New York.

“Inflation lags the business cycle, we already know the

economy is being hit,” he said. “How long is the lag to the Fed

saying we got inflation clearly coming down in the proper

direction, to the proper magnitude, that maybe we can extend out

the timing of the rate hikes, not reverse them.”

The yield on the 30-year Treasury bond was down

7.3 basis points to 3.139%.

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

Inflation-Protected Securities (TIPS) was last at

2.64%.

The 10-year TIPS breakeven rate was last at

2.384%, indicating the market sees inflation averaging about

2.4% a year for the next decade.

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

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, seen by some as a better gauge of inflation

expectations, was last at 2.420%.

June 30 Thursday 10:47 AM New York / 1447 GMT

Price Current Net

Yield % Change

(bps)

Three-month bills 1.7225 1.754 -0.003

Six-month bills 2.44 2.5046 -0.010

Two-year note 100-17/256 2.9655 -0.087

Three-year note 99-152/256 3.0194 -0.109

Five-year note 100-244/256 3.0429 -0.110

Seven-year note 101-36/256 3.0676 -0.102

10-year note 98-232/256 3.0036 -0.089

20-year bond 97-232/256 3.3955 -0.068

30-year bond 94-232/256 3.1389 -0.073

DOLLAR SWAP SPREADS

Last (bps) Net

Change

(bps)

U.S. 2-year dollar swap 32.75 -1.50

spread

U.S. 3-year dollar swap 14.25 -0.50

spread

U.S. 5-year dollar swap 3.75 0.00

spread

U.S. 10-year dollar swap 8.00 0.25

spread

U.S. 30-year dollar swap -23.25 0.50

spread

(Reporting by Herbert Lash

Editing by Mark Potter)

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