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TREASURIES-U.S. yields drop as Fed's Powell affirms slow rate hike pace could start in December

    (Adds monthly milestones, updates prices)

      Fed's Powell warns inflation fight is not over

      Fed's peak fed funds rate slips to 4.9% after Powell's

      U.S. two-year yields post smallest monthly rise since Sept

      U.S. five-year yields post largest monthly fall since
April 2020

    By Gertrude Chavez-Dreyfuss
       NEW YORK, Nov 30 (Reuters) - U.S. Treasury yields
retreated on Wednesday after trading higher for most of the
session after Federal Reserve Chair Jerome Powell struck a more
dovish tone than the market expected, saying the U.S. central
bank could slow the pace of rate hikes as soon as next month.
    Fed funds futures on Wednesday raised the chances of a 50
basis-point hike at a policy meeting next month to 89% from 83%
just before Powell's comments. For the February meeting, the
rates market has factored in a 58% likelihood of another such
rate hike.
    The peak Fed funds rate slid after Powell's comments to
4.95%, seen hitting in May next year. Before his remarks, that
peak rate was at 5.05%, expected at the June meeting.

    Powell said
     on Wednesday the U.S. central bank could ease the pace of
interest rate hikes "as soon as December" but warned that the
fight against inflation is far from over.
    "Generally, the market seems to have priced in the worst of
it already and just sort of getting the event volatility out of
play is sort of helping risk assets," said John Luke Tyner,
fixed income portfolio manager at Aptus Capital Advisors in
Fairhope, Alabama.
    "This probably isn't the response that Powell is looking
for, especially since the terminal rate is moving lower. If this
was the message that Powell is trying to communicate, then this
is different from what he said in the last several meetings," he
    In afternoon trading, the yield on 10-year Treasury notes
 fell 6.1 basis points to 3.647%. For the month of
November, 10-year yields dropped 11.5 bps, the largest monthly
decline since July.
    The yield on the 30-year Treasury bond slipped
to 3.795%.
    On the front end of the curve, the two-year U.S.
Treasury yield, which typically moves in step with interest rate
expectations, was down nearly 10 bps at 4.372%. On the month,
the two-year yield rose 17 bps, the smallest increase since
September 2021.
        U.S. five-year yields sank 10 bps to 3.821%,
posting a monthly fall of 21.6 bps, the biggest decline since
April 2020.

    A widely tracked part of the U.S. Treasury yield curve
measuring the gap between yields on two- and 10-year Treasury
notes remained inverted at -72.7 bps, narrower
following the slew of data released earlier in the session. The
inversion of this curve typically precedes recession.
        U.S. yields earlier rose after data showed the economy
grew more than expected in the third quarter, reinforcing
expectations the Fed will continue to raise rates well into next
year, though at a slightly slower pace.
    Gross domestic product expanded at a 2.9% annualized rate in
the third quarter, according to the government's second
estimate, higher than the preliminary number of 2.6%. The
economy had contracted at a 0.6% rate in the second quarter.
    The report followed private sector employment data, which
showed new jobs created rose less than expected in November,
giving the Fed some flexibility to ease the pace of tightening.
    U.S. private employment increased by 127,000 jobs in
November, the ADP National Employment report showed. Economists
polled by Reuters had forecast private jobs increasing 200,000.
    The ADP number briefly earlier weighed on U.S. Treasury
      November 30 Wednesday 3:52PM New York / 2052 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             4.2575       4.3636    -0.020
 Six-month bills               4.5375       4.7085    -0.023
 Two-year note                 100-62/256   4.372     -0.101
 Three-year note               101-6/256    4.128     -0.116
 Five-year note                100-58/256   3.8247    -0.097
 Seven-year note               100-166/256  3.7687    -0.080
 10-year note                  103-156/256  3.6884    -0.060
 20-year bond                  99-236/256   4.0056    -0.009
 30-year bond                  103-112/256  3.8066    0.005

                               Last (bps)   Net
 U.S. 2-year dollar swap        30.75        -0.50
 U.S. 3-year dollar swap        11.50        -0.50
 U.S. 5-year dollar swap         3.25        -0.25
 U.S. 10-year dollar swap       -4.75        -0.25
 U.S. 30-year dollar swap      -44.75         0.25

 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Nick
Zieminski, Lisa Shumaker and Diane Craft)

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