Yields tumble on recession fears as Fed hikes rates


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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

1994.

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

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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

in unemployment.

Data on Thursday added to fears of slowing growth. The

number of Americans filing new claims for unemployment benefits

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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

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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

(bps)

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

Change

(bps)

U.S. 2-year dollar swap 44.00 7.75

spread

U.S. 3-year dollar swap 17.75 1.75

spread

U.S. 5-year dollar swap 3.25 -0.50

spread

U.S. 10-year dollar swap 4.75 -0.75

spread

U.S. 30-year dollar swap -31.00 -1.25

spread

(Reporting by Davide Barbuscia; editing by Jonathan Oatis and

Richard Chang)

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