Yields tumble on recession fears as Fed hikes rates
NEW YORK — U.S. Treasury yields fell on
Thursday as fears of a recession dented risk appetite and
boosted demand for safe haven U.S. debt, a day after the Federal
Reserve hiked its benchmark interest rate by the most since
Yields have quickly pushed higher since data on Friday
showed inflation soared in May, raising expectations that the
U.S. central bank will increase rates at a faster pace and by
more than previously expected to tame rising price pressures.
The Fed on Wednesday raised rates by three-quarters of a
percentage point. Officials also envision steady rate hikes
through the rest of this year, perhaps including additional
75-basis-point hikes, with a federal funds rate at 3.4% at
year’s end. That would be the highest level since January 2008.
“The dot plot was certainly hawkish, with the median dots
exceeding the high bar set by the market,” said Jonathan Cohn,
head of rates trading strategy at Credit Suisse.
Now, investors fear that the Fed’s monetary tightening could
tip the U.S. economy into recession.
Fed projections showed that officials see the rate increases
slowing the economy markedly in coming months and causing a rise
Data on Thursday added to fears of slowing growth. The
number of Americans filing new claims for unemployment benefits
fell less than expected last week, suggesting some cooling in
the labor market, though conditions remain tight.
A Commerce Department report showed U.S. housing starts
plunged 14.4% to a seasonally adjusted annual rate of 1.549
million units last month, the lowest since April 2021.
Two-year Treasury yields, which are highly sensitive to
interest rate moves, fell to 3.158% and are down from 3.456% on
Tuesday, which was the highest since November 2007.
Benchmark 10-year yields dipped to 3.307%, after reaching
3.498% on Tuesday, the highest since April 2011.
The closely watched yield curve between two-year and 10-year
notes steepened to 14 basis points, after
inverting by 5 basis points on Tuesday. An inversion in this
part of the curve is seen as a reliable indicator that a
recession is likely in one to two years.
Inflation expectations also fell on Thursday, indicating
that some market participants think the Fed could succeed in
bringing down consumer prices.
Breakeven rates on five-year Treasury Inflation-Protected
Securities (TIPS), a measure of expected annual inflation for
the next five years, fell to 2.91%. They are down from a
five-week high of 3.25% reached on Monday.
June 16 Thursday 3:00PM New York / 1900 GMT
Price Current Net
Yield % Change
Three-month bills 1.5525 1.5802 -0.177
Six-month bills 2.17 2.2244 -0.109
Two-year note 98-195/256 3.1582 -0.121
Three-year note 98-160/256 3.3615 -0.075
Five-year note 96-154/256 3.3756 -0.096
Seven-year note 96-24/256 3.385 -0.098
10-year note 96-96/256 3.3068 -0.088
20-year bond 94-216/256 3.6154 -0.062
30-year bond 90-224/256 3.361 -0.047
DOLLAR SWAP SPREADS
Last (bps) Net
U.S. 2-year dollar swap 44.00 7.75
U.S. 3-year dollar swap 17.75 1.75
U.S. 5-year dollar swap 3.25 -0.50
U.S. 10-year dollar swap 4.75 -0.75
U.S. 30-year dollar swap -31.00 -1.25
(Reporting by Davide Barbuscia; editing by Jonathan Oatis and