TREASURIES – The week-long rally in Treasuries has the bond index positive for the year

(Adds details on index performance in paragraph 3, link to story on Fed officials in paragraph 13) By David Randall NEW YORK, Nov 17 (Reuters) – The sharp decline in U.S. Treasury yields since early November continued on Friday with these continued The 10-year benchmark bond briefly fell to a two-month low before rising slightly. Yields have fallen sharply since hitting a 16-year peak of 5% in late October after a series of economic data suggested inflation was cooling, bolstering market expectations that the Federal Reserve has completed its cycle of interest rate hikes. The Bloomberg Global Aggregate Bond Index, considered an industry benchmark for bond market returns, rose 1.7% in the week ended Thursday and was up 0.03% for the year. The broad bond market has fallen in each of the past two years as yields rose from historic lows during the coronavirus pandemic. Futures markets are now pricing in a 28% chance that the Fed will cut interest rates at its March meeting. A month ago the chance was 7%, when the US economy was coming off its strongest quarterly growth in two years. Since then, slowing consumer inflation and higher-than-expected jobless claims have caused yields to fall sharply this week. “Markets are nervous and any movement in inflation numbers will trigger an outsized reaction,” said Sweta Singh, portfolio manager at City Different Investments. The 10-year Treasury yield, which moves inversely to price, has fallen about 60 basis points since its peak in October. The yield briefly fell to 4.37% on Friday before data showed U.S. housing starts rose modestly in October. Economists had expected a slight decline. “With deep concerns about the resilience of the all-important consumer, today’s reports suggest that homebuilders are not anticipating a looming recession,” said Quincy Krosby, chief global strategist at LPL Financial. The 10-year yield fell 0.6 basis points to 4.439%, while the 30-year Treasury yield fell 2.8 basis points to 4.594%. The two-year yield, which typically moves in line with interest rate expectations, rose 5.2 basis points to 4.894%. Despite Friday’s gains, two-year Treasury yields are on track for their biggest weekly decline since early September. The spread between two- and 10-year Treasury yields, an indicator of economic expectations, widened slightly. Curve inversion was -44.0 basis points on Friday, compared to -38 basis points the previous day, and remains near its lowest point since early October. Fed officials who spoke Friday, including Boston Fed President Susan Collins and San Francisco Fed President Mary Daly, emphasized that the central bank will remain patient to see further signs of cooling inflation. Market participants will likely pause to digest the week’s big yield drops, especially with the shortened holiday week approaching, said Christopher Gunster, head of fixed income at Fidelis Capital. “The move over the last few weeks has been interesting in terms of speed, but we need to get used to more volatility” as futures markets try to predict the timing of the Fed’s first rate cut, he said. November 17, Friday, 3:39 p.m. New York / 2039 GMT Price Current Net Yield Change in % (basis points) Three-month notes 5.245 5.4009 -0.007 Six-month notes 5.1925 5.4181 0.005 Two- One-year bond 100-44/256 4.9047 0.063 Three-year bond 99-248/256 4.6361 0.045 Five-year bond 101-220/256 4.4513 0.024 Seven-year bond 102-88/256 4.4781 0.014 10- yr Bond 100-120/256 4.4413 -0.004 20 yr Bond 94- 140/256 4.8053 -0.012 30 yr Bond 102-116/256 4.5984 -0.024 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) 2 year US dollar swap 0.00 0.00 spread 3 year US dollar swap 0.00 0.00 spread 5 year US dollar swap 0.00 0.00 spread 10 year U.S. Dollar Swap 0.00 0.00 Spread 30-Year U.S. Dollar Swap 0.00 0.00 Spread (Reporting by David Randall. Additional reporting by Dan Burns; Editing by Nick Zieminski, Marguerita Choy and Richard Chang)