moved a lot on fed funds expectations from where they were at the start of February. In three weeks, there has been a dramatic change in market expectations for Fed activity -- the 5.5% fed funds rate is in play here and close to three hikes built in," he added. Thursday's reports came in the wake of recent robust data that suggested the U.S. economy may avert a recession after all. Initial claims for state unemployment benefits slid 3,000 to a seasonally-adjusted 192,000 for the week ended Feb. 18, data showed. Economists polled by Reuters had forecast 200,000 claims for the latest week. Claims have been hemmed in a tight 183,000-206,000 range this year. At the same time, gross domestic product increased at a revised 2.7% annualized rate last quarter, the government said in its second estimate of fourth-quarter GDP. That was revised down from the 2.9% pace reported last month. Economists had expected GDP growth to be unrevised. The fourth-quarter personal consumption expenditures (PCE) price index, one of the key inflation measures tracked by the Fed for monetary policy, rose 3.7%, from the first reading of 3.2%, while the core PCE climbed to 4.3%, from the initial estimate of 3.9%. Fed funds futures are priced for 25 basis-point (bp) hikes over the next three meetings, with a peak rate if 5.36% hitting in July. . In late morning trading, the yield on 10-year Treasury notes was down 2.5 bps at 3.898%.
U.S. 30-year Treasury bond yields fell
4.3
bps
to
3.885 %.
A closely-watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes , seen as an indicator of economic expectations, was still inverted at -78.5 basis points, suggesting looming recession. This curve, which hs predicted seven of the last eight recessions, has been inverted since July last year. The two-year U.S. Treasury yield, which typically reflects rate expectations, was down 1.2 bps at 4.687%.
Also on Thursday, the U.S. Treaury will auction $35 billion in $35 billion in seven-year notes.
"The auction strategies that were in place that led to the
extremely aggressive (seven-year) auction results last month do
not seem to have the same ammunition in February," wrote Tom
Simons, money market economist at Jefferies in New York.
"However, the back up in yields since last month should
bring in some demand from real money."
February 23 Thursday 10:33AM New York / 1533 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 4.6975 4.8193 -0.009
Six-month bills 4.915 5.1095 0.007
Two-year note 99-219/256 4.7015 0.003
Three-year note 98-214/256 4.4215 -0.008
Five-year note 99-104/256 4.1326 0.000
Seven-year note 96-148/256 4.0711 0.000
10-year note 96-140/256 3.9215 -0.002
20-year bond 97-68/256 4.0764 -0.012
30-year bond 95-12/256 3.9069 -0.021
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 33.75 -0.25
spread
U.S. 3-year dollar swap 19.75 0.00
spread
U.S. 5-year dollar swap 8.00 1.50
spread
U.S. 10-year dollar swap 0.00 -0.25
spread
U.S. 30-year dollar swap -40.00 -0.25
spread
(Reporting by Gertrude Chavez-Dreyfuss)
