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TREASURIES-Yields near week's lows as growth concerns weigh

·3 min read

(Adds comments from Fed's Kashkari, quote, updates prices) By Karen Brettell NEW YORK, June 17 (Reuters) - U.S. Treasury yields held near this week’s lows on Friday after a volatile five days that saw them hit more than 10-year highs on expectations of aggressive rate hikes, and then fall on concerns about how these will impact growth. The Federal Reserve is expected to continue hiking interest rates aggressively as it faces soaring inflation, following a 75 basis points hike on Wednesday, the largest since 1994. “There’s a lot of worries about the next time the Fed meets, which is the end of July, about whether they are going to do 75 or do something slightly less, which would be 50 basis points,” said Tom di Galoma, a managing director at Seaport Global Holdings. Fed funds futures traders are pricing in a 78% probability of a 75 basis points hike in July, and an 22% chance of a 50 basis points increase. The Fed’s benchmark rate is expected to rise to 3.76% by March, from 1.58% now. Yields briefly jumped after Minneapolis Fed President Neel Kashkari on Friday said he supported the U.S. central bank's 75 basis points hike this week and could support another similar-sized one in July, but said the Fed should be "cautious" about doing too much too fast. “Though he is not a voter, he is one of the most dovish on the FOMC, and so this stance is weighing on the bond market,” analysts at Action Economics said in a note. The rapid increase in interest rates is expected to slow growth and could tip the economy into recession, which would likely send longer-dated Treasury yields lower. “As we go through the rest of the year I think rates will be lower than they are right now, because I think we’re headed towards a recession sooner rather than later,” di Galoma said. Data on Friday showed that Production at U.S. factories unexpectedly fell in May, the latest sign of cooling economic activity. Two-year Treasury yields, which are highly sensitive to interest rate moves, were last at 3.166% and are down from 3.456% on Tuesday, which was the highest since November 2007. Benchmark 10-year yields were at 3.239%, after reaching 3.498% on Tuesday, the highest since April 2011. The closely watched yield curve between two-year and 10-year notes was at 7 basis points, after inverting by 5 basis points on Tuesday. An inversion in this part of the curve is seen as a reliable indicator that a recession is likely in one to two years. June 17 Friday 3:00PM New York / 1900 GMT Price Current Net Yield % Change (bps) Three-month bills 1.5725 1.6004 0.015 Six-month bills 2.175 2.229 0.005 Two-year note 98-193/256 3.1659 0.008 Three-year note 98-176/256 3.3407 -0.020 Five-year note 96-196/256 3.3401 -0.034 Seven-year note 96-104/256 3.3339 -0.051 10-year note 96-240/256 3.2389 -0.066 20-year bond 95-208/256 3.5449 -0.070 30-year bond 92-24/256 3.2925 -0.069 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 42.25 -2.00 spread U.S. 3-year dollar swap 17.75 0.00 spread U.S. 5-year dollar swap 4.00 0.75 spread U.S. 10-year dollar swap 6.00 1.25 spread U.S. 30-year dollar swap -28.25 2.75 spread (Reporting by Karen Brettell Editing by Nick Zieminski)