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Yield curve flattens as hawkish Fed adds to growth concerns

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NEW YORK — The yield curve inverted

further on Wednesday after the Federal Reserve hiked rates by 75

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basis points and signaled more increases are to come, adding to

fears about an economic downturn.

Yields initially surged, with benchmark 10-year notes

hitting the highest levels since 2011 and two-year yields the

highest since 2007, after the U.S. central bank’s target

interest rate was increased to a range of 3.00%-3.25% and new

projections showed its policy rate rising to 4.40% by the end of

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this year before topping out at 4.60% in 2023.

Fed Chairman Jerome Powell said in comments after the

statement that central bank officials are “strongly resolved” to

bring down inflation from the highest levels in four decades and

“will keep at it until the job is done.”

“Until there is a major slowdown in inflation, the Fed will

continue to hike. Financial markets are finally getting the

message that the Fed will not blink,” said Kevin Nicholson,

Global Fixed Income chief investment officer at Riverfront

Investment Group in Virginia.

But yields retraced from their highs after Powell said that

the so-called “dot plot” of rate and economic expectations do

not represent a plan or commitment, underscoring the difficulty

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in forecasting the path of the economy.

“With recession looking virtually impossible to avoid, we

see a strong chance of policy reversal later in 2023,” analysts

at ING said in a note, adding that “despite the hawkishness of

the Fed today, the market is tentatively pricing in nearly 50bp

of rate cuts in 2023.”

The Fed’s economic projections showed the economy slowing to

a crawl in 2022, with year-end growth at 0.2%, rising to 1.2% in

2023, well below the economy’s potential. The unemployment rate

is projected to rise to 3.8% this year and 4.4% in 2023.

Inflation is seen slowly returning to the Fed’s 2% target in


Two-year Treasury yields were last 4.042%, after

earlier reaching 4.123%, the highest since October 2007.

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Benchmark 10-year U.S. Treasury yields were 3.520%,

after earlier hitting 3.640%, the highest since February 2011.

The closely watched yield curve between two-year and 10-year

notes inverted further to minus 53 basis points,

indicating concerns about a recession in the next one-to-two


The curve between five-year and 30-year bonds

also inverted to minus 29 basis points, the deepest inversion

since 2000.

Real yields, which adjust for expected inflation, also

jumped but ended the day off their highs.

Five-year yields on Treasury Inflation-Protected Securities

(TIPS) fell to 1.305%, from a high of a 1.422%, the

highest since August 2009. Ten-year TIPS yields

were last 1.153%, after reaching 1.246%, the highest since

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February 2011.

Yields had eased earlier on Wednesday as concerns about an

escalation of the war between Russia and Ukraine modestly

boosted demand for safe haven U.S. debt.

President Vladimir Putin ordered Russia’s first wartime

mobilization since World War Two on Wednesday, shocking his

countrymen with what Western countries described as an act of

desperation in the face of a losing war.

September 21 Wednesday 4:03PM New York / 2003 GMT

Price Current Net

Yield % Change


Three-month bills 3.2125 3.2838 -0.064

Six-month bills 3.7725 3.8993 -0.003

Two-year note 98-137/256 4.042 0.078

Three-year note 98-160/256 3.9937 0.057

Five-year note 97-52/256 3.7503 -0.003

Seven-year note 96-184/256 3.6646 -0.031

10-year note 93-156/256 3.5201 -0.053

20-year bond 94-216/256 3.7447 -0.100

30-year bond 90-244/256 3.4897 -0.091


Last (bps) Net



U.S. 2-year dollar swap 41.00 3.00


U.S. 3-year dollar swap 19.75 1.75


U.S. 5-year dollar swap 9.25 0.50


U.S. 10-year dollar swap 6.50 0.00


U.S. 30-year dollar swap -31.00 -0.25


(Additional reporting by Michelle Price in Washington; editing

by Jonathan Oatis)



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