December 4, 2018 / 5:37 PM / in 5 months

TREASURIES-U.S. yield inversion spreads on worries about slowing growth

    * Parts of yield curve inverted for first time in over a
    * Traders shrug off upbeat comments from Fed's Williams 
    * U.S. markets closed Wednesday to mourn former President

 (Updates yield levels, adds graphic)
    By Richard Leong
    NEW YORK, Dec 4 (Reuters) - The premium between
shorter-dated U.S. Treasury yields above longer-dated ones rose
on Tuesday, spreading the inversion of the yield curve between
more maturities as traders piled on bets on a slowdown in U.S.
economic growth.
    The two-year yield briefly rose above the three-year yield
 for the first time since January 2008. Two-year
and three-year yields held above the five-year yield for a
second day, Tradeweb data showed.
    Expectations that business and consumer activity would fall
in the coming months spurred buying of longer-dated Treasuries,
sending the benchmark 10-year yield to its lowest
levels since mid-September.
    The inversion of the two-year and 10-year yields preceded
the past three U.S. recessions. 
    So far, that inversion has not occurred. The 10-year yield
held a 12-basis-point margin over its two-year counterpart,
although it was the smallest one in over a decade.

    "It doesn't signal there's a recession anytime soon. It is
signaling expectations of a growth slowdown," Deborah
Cunningham, chief investment officer of money markets at
Federated Investment Management Co. in Pittsburgh, said of the
parts of the curve that inverted.
    At 11:37 a.m. EST, the 10-year Treasury yield
fell five basis points to 2.939 percent after hitting its lowest
level since Sept. 11.
    The 30-year yield touched 3.198 percent, the
lowest since Oct. 3.
    Concerns about weaker growth have also stoked bets the
Federal Reserve would end its campaign to raise interest rates
sooner than previously thought, analysts said.
    The futures market implied traders expect the U.S. central
bank will raise rates by a quarter percentage point to a range
of 2.25 percent to 2.50 percent at its next policy meeting on
Dec. 18-19, according to CME Group's FedWatch program.

    However, they scaled back their expectations of two rate
hikes in 2019 to less than 10 percent, down from 59 percent a
month ago.
    The traders' reduced outlook on the number of future Fed
rate hikes did not change following upbeat remarks on the
economy from New York Fed President John Williams.
    "Given this outlook I describe of strong growth, strong
labor market and inflation near our goal - and taking into
account all the various risks around the outlook - I do continue
to expect that further gradual increases in interest rates will
best foster a sustained economic expansion and a sustained
achievement of our dual mandate," Williams told reporters.

    U.S. stock and bond markets will be closed on Wednesday for
a national day of mourning for former U.S. President George H.W.
Bush, who died on Friday.
December 4 Tuesday 11:38AM EDT/ 1638 GMT
 US T BONDS DEC8               142-11/32    1-6/32     
 10YR TNotes MAR9              119-236/256  0-84/256   
                               Price        Current    Net
                                            Yield %    Change
 Three-month bills             2.375        2.4227     0.018
 Six-month bills               2.5          2.5672     0.005
 Two-year note                 99-221/256   2.8211     -0.012
 Three-year note               100-34/256   2.8273     -0.017
 Five-year note                100-78/256   2.809      -0.030
 Seven-year note               100-12/256   2.8675     -0.043
 10-year note                  101-148/256  2.9407     -0.050
 30-year bond                  103-92/256   3.1997     -0.078
   DOLLAR SWAP SPREADS                                 
                               Last (bps)   Net        
 U.S. 2-year dollar swap        16.25        -0.50     
 U.S. 3-year dollar swap        15.00        -0.50     
 U.S. 5-year dollar swap        13.75        -0.50     
 U.S. 10-year dollar swap        6.00         0.50     
 U.S. 30-year dollar swap      -12.50         1.50     

 (Reporting by Richard Leong
Editing by Frances Kerry and Paul Simao)
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