TREASURIES-Yields drop as Fed signals only one more hike
(Adds quotes, inflation expectations, details, updates prices) By Karen Brettell NEW YORK, March 22 (Reuters) - U.S. Treasury yields fell on Wednesday after the Federal Reserve raised interest rates by 25 basis points, as was widely expected, and said policymakers believe beating back inflation may require only one more rate hike this year. U.S. central bankers see the policy rate, now in the 4.75%-5.00% range after Wednesday's increase, at 5.1% by year end, according to the median estimate in the Fed's latest quarterly summary of economic projections. "Basically it's a dovish statement. They hinted that they're getting very close to the end of their tightening cycle," said Peter Cardillo, chief market economist at Spartan Capital Securities in New York. However, policymakers also see less easing next year than most thought would be appropriate just three months ago, before a slew of stronger-than-expected readings on growth and inflation, but also before recent turmoil in the banking sector that policymakers expect will weigh on economic growth. Forecasts from the 18 policymakers were also varied, with seven policymakers seeing a higher appropriate stopping point for rates. One policymaker thought no further rate hikes would be needed. “We see considerable uncertainty in the path ahead and would downplay the significance of updated economic and dot plot projections in such a fast-moving environment,” Ashish Shah, chief investment officer of Goldman Sachs’ public investing business, said in a note. "Going forward, we expect the Fed’s data dependent framework to be informed by what happens in both the economy and banking sector," he said. Fed Chair Jerome Powell said that while banking system stress following the failure of Silicon Valley Banking has added uncertainty to the outlook, it's still possible the economy may not face a sharp downturn. Benchmark 10-year note yields were last at 3.502% and two-year yields were 3.989%. The inversion in the closely watched yield curve between two-year and 10-year notes narrowed to minus 50 basis points from around minus 60 basis points before the Fed’s decision. Fed funds futures traders are currently pricing for a roughly equal chance that the Fed will hike rates by an additional 25 basis points in May or leave them unchanged. Inflation expectations also edged higher. Breakeven rates on five-year Treasury Inflation-Protected Securities (TIPS) show expected inflation of 2.41% per year for the next five years, up from 2.37% earlier. March 22 Wednesday 3:20PM New York / 1920 GMT Price Current Net Yield % Change (bps) Three-month bills 4.595 4.7136 -0.039 Six-month bills 4.705 4.9 -0.024 Two-year note 101-44/256 3.9891 -0.188 Three-year note 102-98/256 3.7713 -0.214 Five-year note 101-242/256 3.5664 -0.180 Seven-year note 102-192/256 3.549 -0.147 10-year note 99-252/256 3.5016 -0.104 20-year bond 100-48/256 3.8612 -0.050 30-year bond 98-160/256 3.7013 -0.035 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 30.50 1.75 spread U.S. 3-year dollar swap 18.00 1.25 spread U.S. 5-year dollar swap 9.75 0.50 spread U.S. 10-year dollar swap 2.25 -0.25 spread U.S. 30-year dollar swap -44.25 1.25 spread (Reporting by Karen Brettell; Additional reporting by Caroline Valetkevitch in New York; editing by Jonathan Oatis and Leslie Adler)
