by Karen Brettel
Nuevanew yorkJan. 19 – US 10-year Treasury yields edged higher from a four-month low on Thursday as they reached a key technical level, although the recent rally looked overdone in the near term.
* Debt yields were falling as investors feared the US central bank might not raise interest rates to the levels it expected if the economy soon slid into recession.
* Federal Reserve officials have emphasized that they will need to raise rates above 5% and hold them for some time to reduce inflation.
* “The market is thinking a recession is imminent and that’s something I think the Fed probably doesn’t agree with right now,” said Gennady Goldberg, interest rate strategist at TD Securities in New York.
* “They see that things are slowing down, but not so much that the United States has fallen into a recession or is about to enter one.”
* Fed Vice Chairman Lael Brainard said on Thursday more signs appear in favor of a “soft landing” for the US economy, with inflation easing without major job losses. He added that the Fed is still “testing” the level of interest rates that will be sufficient to control price increases.
* The yield on 10-year debt traded at 3.397%, having earlier fallen to 3.321%, the lowest level since Sept. 13. The yield has fallen from 3.905% at the end of the year, and from a 15-year high of 4.338% on 21 October.
* Key parts of the yield curve also remained deeply inverted, reflecting concerns about an impending recession. The two-year and 10-year curves stood at -72 basis points, while the spread between the three-month and 10-year yields stood at -128 basis points.
* Yields edged higher on Thursday after the European Central Bank dismissed market bets that it would slow the pace of interest rate hikes. Some see the recent rally in bonds as overextended even for the near term.
* The two-year rate was trading at 4.118%, its lowest since October 4, after hitting 4.041%.