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U.S. yields fall from multi-week lows after soft economic data


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NEW YORK — U.S. Treasury yields slid from

multi-week peaks on Tuesday after data showed signs of a slowing

economy, with the contraction in U.S. private-sector activity

for a second consecutive month in August and the steep drop in

new home sales for July.

Before the data’s release, U.S. 10-year yields were at

five-week highs, 30-year yields at eight-week peaks, with

five-year yields hitting their highest as well in five weeks.

U.S. economic reports showed that private-sector business

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activity shrank to its weakest in 18 months, with particular

softness in the services sector.

The S&P Global flash composite purchasing managers index

(PMI) for August dropped to 45 this month – the lowest since

February 2021 – from a final reading of 47.7 in July.

Sales of new U.S. single-family homes also fell sharply in

July amid persistently high mortgage rates. New home sales

tumbled 12.6% to a seasonally-adjusted annual rate of 511,000

units last month.

“Treasuries were under pressure throughout the morning with

the belly of the curve underperforming; this has been fully

reversed and then some,” wrote Ian Lyngen, head of U.S. rate

strategy at BMO Capital Markets, after the data.

“PMIs led to a bounce off the lows; taking back the 2-year

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auction concession that had been priced in intraday. From here,

we’ll be watching the modest improvement in equities off the

lows as a response to a potentially less hawkish Fed.”

Following the economic numbers, fed funds futures have

priced in a 56% chance of a 50 basis-point (bps) rate hike at

the Federal Reserve’s policy meeting next month, from 54% on

Monday. But the fed funds rate is seen hitting roughly 3.5% by

the end of the year, compared with 3.7% the previous session,

with a peak rate of 3.7% in March 2023, from 3.8% on Monday.

Investors overall are still positioned for hawkish Federal

Reserve comments at this week’s central bank gathering in

Jackson Hole, Wyoming that should entail more interest rate

increases to bring down inflation to the Fed’s 2% target.

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Fed Chair Jerome Powell is slated to speak on Friday

morning.

“There’s a very good chance Powell is going to be hawkish on

Friday. Accounts are getting prepared for his hawkishness,” said

Tom di Galoma, managing director, Seaport Global Holdings in

Greenwich, Connecticut.

“I think the Fed wants to increase rates significantly one

more time in September. I am looking for 75 bps in September.

When it gets into November, it’s a little too close to the

(midterm) elections so maybe they’ll back off a bit,” he added.

In late morning trading, the yield on 10-year Treasury notes

was down 3.5 basis points at 3.000%.

U.S. 30-year Treasury bond yields fell as well,

down 2.3 basis points to 3.218%.

A key U.S. Treasury yield curve measuring the gap between

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yields on two- and 10-year Treasury notes, seen as

an indicator of economic expectations remained inverted at

-26.2 basis points.

The inversion on this part of the yield curve historically

foreshadows recession. It has predicted eight of the last nine

recessions, analysts said.

The two-year U.S. Treasury yield, which typically

tracks interest rate expectations, was down 7.7 basis points at

3.260%.

Also later on Tuesday, the U.S. Treasury will auction $44

billion in two-year notes.

August 23 Tuesday 10:58AM New York / 1458 GMT

Price Current Net

Yield % Change

(bps)

Three-month bills 2.695 2.7516 -0.046

Six-month bills 3.08 3.1723 -0.052

Two-year note 99-133/256 3.2575 -0.079

Three-year note 99-128/256 3.3026 -0.072

Five-year note 98-78/256 3.1231 -0.054

Seven-year note 97-48/256 3.0783 -0.051

10-year note 97-216/256 3.0017 -0.033

20-year bond 98-204/256 3.4589 -0.032

30-year bond 95-212/256 3.2179 -0.023

DOLLAR SWAP SPREADS

Last (bps) Net

Change

(bps)

U.S. 2-year dollar swap 37.50 0.00

spread

U.S. 3-year dollar swap 13.25 -0.25

spread

U.S. 5-year dollar swap 3.75 0.00

spread

U.S. 10-year dollar swap 6.75 0.75

spread

U.S. 30-year dollar swap -30.50 1.00

spread

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Chizu

Nomiyama)

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