U.S. yields slip as growth concerns weigh on markets ahead of Fed


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NEW YORK — U.S. Treasury yields inched

down on Wednesday, reflecting concerns about an economic

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slowdown ahead of the Federal Reserve’s interest rate-setting

meeting next week.

The Fed raised its benchmark overnight rate by 4.25

percentage points last year to fight decades-high inflation, but

the rapid tightening of monetary policy – the fastest since the

1980s – has led investors to weigh inflation concerns against

recessionary fears, with markets fluctuating between the two.

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After a series of supersized rate hikes last year, the U.S.

central bank is now largely expected to raise rates by a smaller

25 basis points next week after signs that inflation is cooling

off. The prospect of a slower tightening pace has recently

reinforced some expectations of a so-called soft landing – a

scenario in which inflation eases against a backdrop of

weakening but resilient economic growth.

But fears of an upcoming economic contraction were affecting

markets on Wednesday, with a bleak revenue guidance from

Microsoft Corp on Tuesday weighing on sentiment for

growth stocks, and with investors focused on corporate earnings

reports to assess the impact of the Fed’s hikes and gauge

whether recent enthusiasm for such stocks will be sustained.

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“Tech earnings … clearly painted a picture of a macro

slowdown. The January rally might be over if the rest of the

big-tech earnings and multi-nationals paints the same downbeat

picture,” Edward Moya, senior market analyst at OANDA, said in a


Meanwhile, overseas inflation data and central banks’

decisions sent mixed messages.

In Australia,

inflation rose to a 33-year peak

of 7.8% last quarter, signaling global central banks might

need to keep hiking interest rates for longer, dampening a

recent wave of optimism that aggressive monetary tightening was

almost done.

The Bank of Canada, on the other hand,

signaled it would likely halt further hikes

after lifting its key interest rate to 4.5% on Wednesday.

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“It’s kind of a tug-of-war between central banks, which may

not eventually be easing the way the markets are pricing, and

the weaker growth data,” said Eric Theoret, global macro

strategist at Manulife Investment Management.

Benchmark 10-year government bond yields

declined marginally, about one basis point, to 3.458% on

Wednesday, and two-year note yields – slid to 4.137%.

A widely tracked part of the U.S. Treasury yield curve

measuring the gap between those two maturities

remained inverted at -68.1 basis points. The inversion of this

curve has predicted eight of the last nine recessions, analysts

have said.

The U.S. Treasury on Wednesday auctioned $43 billion in

five-year notes at a high-yield of 3.530%, 2.6 basis points

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below the expected rate at the bid deadline, a sign of hefty

investor demand for the paper. The bid-to-cover ratio was strong

at 2.64 times, above last year’s average of about 2.4 times.

January 25 Wednesday 3:00PM New York / 2000 GMT

Price Current Net

Yield % Change


Three-month bills 4.5575 4.6747 -0.020

Six-month bills 4.6475 4.8254 -0.032

Two-year note 99-250/256 4.1373 -0.016

Three-year note 100-24/256 3.8409 -0.022

Five-year note 101-106/256 3.5592 -0.023

Seven-year note 102-64/256 3.506 -0.019

10-year note 105-128/256 3.4581 -0.009

20-year bond 103-168/256 3.7367 -0.002

30-year bond 106-220/256 3.6216 0.001


Last (bps) Net



U.S. 2-year dollar swap 29.25 4.50


U.S. 3-year dollar swap 14.00 0.00


U.S. 5-year dollar swap 4.50 0.75


U.S. 10-year dollar swap -3.25 1.25


U.S. 30-year dollar swap -39.25 1.50


(Reporting by Davide Barbuscia; editing by Jonathan Oatis)


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