×

TREASURIES-U.S. yield curve flattens further on Powell's optimistic outlook

* Yield curve flattens further after Powell's upbeat economic view

* Month-end buying stokes demand for longer-dated Treasuries

* Housing, factory data hint U.S. economic growth far from robust

(Updates market action, adds quote) NEW YORK, Feb 28 (Reuters) - The spread between short- and longer-dated U.S. Treasury yields shrank further on Wednesday after Federal Reserve Chairman Jerome Powell's upbeat view on the economy raised speculation the U.S. central bank may raise interest rates faster. Typical month-end buying to rebalance portfolios also fed demand for longer-dated Treasuries, analysts said. Traders have piled into curve-flattening positions as the Fed has ratcheted up key short-term borrowing costs even as inflation has remained below policy-makers' 2-percent goal. The yield curve hit its flattest level in a decade in January, raising concerns over whether the yield would eventually invert when short-term yields run above longer-dated ones. A curve inversion has often preceded previous U.S. recessions. Many analysts and traders, however, do not expect the curve to invert this year. "Probably at the end of the Fed's tightening cycle, we may see the curve invert, but it won't be the end of this year," said Larry Milstein, head of agency and government trading at R.W. Pressprich & Co. in New York. Powell also downplayed concerns about a curve inversion. "I don't look at the current yield curve situation as a problem," he said during the question-and-answer portion of his testimony before the House Financial Services Committee. The curve has been flattening since Tuesday when Powell acknowledged during the Q&A that the economy has strengthened since December and he was confident inflation will rise. His comments raised bets the Fed might raise short-term rates four times in 2018, one more than what policy-makers projected in December. Powell will appear before the Senate Banking Committee on Thursday to complete his first semi-annual testimony before Congress as Fed chief. At 11:17 a.m. (1617 GMT), the spread between five-year and 30-year yields was 48.05 basis points, tighter than 49.85 basis points late on Tuesday, Tradeweb data showed. The two-year Treasury yield, which is sensitive to traders' view on Fed policy, hit 2.286 percent, the highest since September 2008. It was last 2.270 percent, up a tad from Tuesday. Longer-dated yields slipped on expectations that a faster pace of Fed rate increases would cool U.S. inflation and economic growth. Benchmark 10-year Treasury yield was 2.884 percent, down over 2 basis points on the day. A set of weaker data on Wednesday supported the view the U.S. economy is not firing on all cylinders. The government revised lower its reading on economic activity in the fourth quarter to 2.5 percent. A regional gauge on U.S. Midwest factory activity fell more than forecast in February, while pending home sales unexpectedly declined in January. February 28 Wednesday 11:19AM New York / 1619 GMT Price

US T BONDS MAR8 144-7/32 21/32 10YR TNotes MAR8 120-140/256 5/32 Price Current Net Yield % Change

(bps)

Three-month bills 1.63 1.6595 -0.015 Six-month bills 1.8175 1.8598 -0.013 Two-year note 99-246/256 2.2701 0.004 Three-year note 99-126/256 2.4286 0.001 Five-year note 99-212/256 2.662 -0.007 Seven-year note 99-140/256 2.8218 -0.017 10-year note 98-216/256 2.8843 -0.024 30-year bond 97-64/256 3.1423 -0.033 YIELD CURVE Last (bps) Net

Change (bps)

10-year vs 2-year yield 61.20 -1.50 30-year vs 5-year yield 47.90 -1.80

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 27.75 -0.25

spread

U.S. 3-year dollar swap 23.50 -1.00

spread

U.S. 5-year dollar swap 10.75 -0.50

spread

U.S. 10-year dollar swap 1.50 0.00

spread

U.S. 30-year dollar swap -18.00 0.00

spread

(Reporting by Richard Leong Editing by Susan Thomas)