US Treasury yields fall as fears of a future slowdown overshadow strong data

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NEW YORK – Treasury yields fell on Tuesday as uncertainties surrounding the war in Ukraine and the Federal Reserve’s efforts to reduce inflation prompted investors to remain cautious ahead of an expected interest rate hike next week .

The yield on benchmark 10-year Treasury bills slipped 5.5 basis points to 2.772%, while yields on three-month and 30-year Treasury bills were all lower on the day.

Data released Tuesday, including business spending and consumer confidence, was relatively strong, but people are more concerned about the future than good job and demand growth, Stan Shipley said. Fixed Income Strategist at Evercore ISI.

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“Yields are going down because people are afraid of the future, so they’re afraid that we’re sliding into recession or slowing economic growth,” Shipley said.

“With the Fed going to have to raise interest rates dramatically and with the ongoing war and high oil prices, in late 2022 or early 2023 we could see a recession.”

Policymakers will meet on May 3-4 when they are expected to raise rates by 50 basis points and announce their intention to begin trimming the Fed’s $8.9 trillion balance sheet.

Markets’ reaction next week is unclear, even as Fed Chairman Jerome Powell explained the U.S. central bank’s plans to aggressively fight inflation, said Kevin Flanagan, head of bond strategy at WisdomTree Investments.

“The Fed raised rates once, a quarter point. We’re one rate hike away from a zero interest rate policy,” he said. “Now it’s about for Powell & Co. to ensure that their actions match their words and market expectations.”

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New orders for U.S.-made capital goods rebounded more than expected in March, a sign that business capital spending ended the first quarter with strong momentum, Commerce Department data showed.

Orders for non-military capital goods excluding aircraft rose 1.0% last month, double the forecast of economists polled by Reuters. These so-called basic capital goods orders fell 0.3% in February.

Other data showed consumer confidence falling in April, but it remained above pandemic lows, as home-buying plans soared despite soaring mortgage rates and record prices. houses.

The Treasury sold $48 billion in two-year notes to yield 2.585% at a “pretty strong” auction, said Lou Brien, market strategist at DRW Trading.

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The yield on 30-year Treasury bills fell 3 basis points to 2.865%.

A closely watched part of the yield curve measuring the spread between two- and ten-year bonds, seen as an indicator of economic expectations, was at 22.6 basis points.

The two-year US Treasury yield, which generally moves in line with interest rate expectations, fell 8.6 basis points to 2.544%.

The five-year US Treasury Inflation-Protected Securities (TIPS) break-even rate was last at 3.265%.

The 10-year TIPS break-even rate was last at 2.872%, indicating that the market expects inflation to average around 2.8% per year for the next decade.

The five-year U.S. dollar inflation-linked swap, seen by some as a better gauge of inflation expectations due to possible distortions caused by Fed quantitative easing, last stood at 2.635%. (Reporting by Herbert Lash Editing by Tomasz Janowski / Mark Heinrich)

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