TREASURIES-Yields fall before Fed meeting on weaker data

(Adds economic data, comment) By Herbert Lash NEW YORK, Feb 1 (Reuters) - Treasury yields slid on Wednesday after weak private employment and manufacturing data gave fuel to those who expect the Federal Reserve to reveal a dovish stance later in the day as the economy cools from its aggressive monetary tightening. After a two-day meeting, policymakers will release a statement at 2 p.m. (1800 GMT) in which the Fed is expected to raise its overnight interest rate by 25 basis points, a step down from the U.S. central bank's 50 basis points hike in December. U.S. private payrolls increased far less than expected in January, the ADP National Employment report showed, while U.S. manufacturing contracted further last month, the Institute for Supply Management (ISM) said in a separate report. "There's hope that the Fed statement will be dovish. ADP was weaker than expected, which plays into the (market's) dovish message," said Stan Shipley, market strategist at Evercore ISI. But other data showed a resilient labor market, bolstering arguments the Fed will raise rates to above 5% as officials have projected and keep them there into next year.

U.S. job openings unexpectedly rose in December, showing demand for labor remains strong, the Labor Department said in its monthly Job Openings and Labor Turnover Survey, or JOLTS report, and ISM data suggested factories did not appear to be laying off workers in large numbers. No change in the Fed's statement from December would suggest Fed Chair Jerome Powell remains hawkish, but a change in language would be clue that he's turned dovish, Shipley said. Fed fund futures show the market is pricing in a peak overnight rate of 4.915% in June, but that it will decline to 4.493% in December on expectations the Fed cuts rates in the second half of 2023 to help an economy possibly in recession. The yield on 10-year Treasury notes fell 2.8 basis points to 3.501%, while the two-year note's yield, which often reflects interest rate expectations, rose 0.3 basis points at 4.210%, the only Treasury maturity to rise. The yield on the 30-year Treasury bond was down 2.1 basis points to 3.640%.

Bond yields move in the opposite direction to prices. The yield curve measuring the gap between yields on two- and 10-year notes , seen as a recession harbinger when the shorter-dated yields are higher than longer-dated maturities, remained inverted at -71.0 basis points.

Feb. 1, Wednesday 10:45 a.m. New York / 1545 GMT Price Current Net Yield % Change (bps) Three-month bills 4.56 4.6772 -0.016 Six-month bills 4.65 4.8281 -0.005 Two-year note 99-215/256 4.2095 0.003 Three-year note 99-242/256 3.8942 -0.020 Five-year note 99-132/256 3.6068 -0.029 Seven-year note 99-160/256 3.561 -0.031 10-year note 105-32/256 3.5012 -0.028 20-year bond 103-56/256 3.7674 -0.020 30-year bond 106-132/256 3.6396 -0.021
DOLLAR SWAP SPREADS

Last (bps) Net

Change

(bps)
U.S. 2-year dollar swap spread 27.00 -1.50
U.S. 3-year dollar swap spread 14.00 -0.25
U.S. 5-year dollar swap spread 5.50 0.00
U.S. 10-year dollar swap spread -2.00 0.50
U.S. 30-year dollar swap spread -38.25 1.00

(Reporting by Herbert Lash, additional reporting by David Randall; editing by Barbara Lewis and Sharon Singleton)

Messaging: herb.lash.reuters.com@reuters.net))

Reuters

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