TREASURIES-Yields fall before Fed minutes as capital goods orders miss expectations

       By Karen Brettell
    NEW YORK, May 25 (Reuters) - Benchmark U.S. Treasury yields
fell on Wednesday to briefly hit six-week lows after data showed
that new orders for U.S. made capital goods rose less than
expected in April, and before the Federal Reserve releases
minutes from its latest meeting.
    The drop in capital goods orders pointed to some moderation
in business spending on equipment early in the second quarter,
and headwinds are growing from rising interest rates and
tightening financial conditions.
    It comes before minutes from the Fed's May meeting are
expected to show that the U.S. central bank remains committed to
hiking rates at an aggressive pace in an effort to stem
inflation that is rising at its fastest pace in four decades.
    Investors will be looking for any new clues on whether
weakening economic activity might lead the Fed to slow or pause
rate increases.
    "I will be especially interested in if they characterize and
how they characterize their tolerance for tighter financial
conditions, for a weaker labor market, for lower growth in their
quest to ultimately bring down inflation," said Jonathan Cohn,
head of rates trading strategy at Credit Suisse in New York.
    Benchmark 10-year note yields dropped to 2.708%,
the lowest since April 14, before rebounding to 2.734%. They
have fallen from 3.203% on May 9.
    Two-year note yields fell five basis points to
2.476%.
    Fed funds futures traders are pricing in 50 basis point rate
increases for each of the Fed's June and July meetings, and a
chance of the same in September.
    They have, however, pared their expectations on how high the
Fed will raise its benchmark rate, with the federal funds rate
now expected to be at 2.87% in March, compared with expectations
on Monday of 3.03%. It is currently at 0.83%.

    Falling inflation expectations have added to the less
hawkish outlook, with breakeven rates on five-year Treasury
Inflation-Protected Securities (TIPS), a measure of
expected average annual inflation for the next five years, at
2.89% on Wednesday. They have fallen from a peak of 3.62% last
month.
    The Treasury Department will sell $48 billion in five-year
notes on Wednesday, the second sale of $137 billion in new
coupon-bearing debt this week.
    The U.S. government saw strong demand for a $47 billion sale
of two-year notes on Tuesday.
    It will also sell $42 billion in seven-year notes on
Thursday.

      May 25 Wednesday 9:35AM New York / 1335 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.04         1.0572    -0.008
 Six-month bills               1.47         1.5016    0.000
 Two-year note                 100-12/256   2.4758    -0.045
 Three-year note               100-104/256  2.6068    -0.055
 Five-year note                100-56/256   2.702     -0.055
 Seven-year note               100-204/256  2.7477    -0.042
 10-year note                  101-56/256   2.7344    -0.026
 20-year bond                  101-164/256  3.1387    -0.022
 30-year bond                  98-92/256    2.9579    -0.014

   DOLLAR SWAP SPREADS
                               Last (bps)   Net
                                            Change
                                            (bps)
 U.S. 2-year dollar swap        27.50        -3.25
 spread
 U.S. 3-year dollar swap        14.75         1.25
 spread
 U.S. 5-year dollar swap         2.75         0.50
 spread
 U.S. 10-year dollar swap        5.75         0.50
 spread
 U.S. 30-year dollar swap      -24.75         1.25
 spread



 (Reporting by Karen Brettell; Editing by Kirsten Donovan)

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