TREASURIES-U.S. Treasury yields steady on slower growth outlook

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(Adds fresh prices, market details) By Herbert Lash NEW YORK, May 26 (Reuters) - U.S. Treasury yields were little changed on Thursday after the benchmark 10-year note hit a fresh six-week low, with inflation fears continuing to dissipate as economic data and corporate announcements point to slower growth. The yield on 10-year Treasury notes rose 0.9 basis points to 2.756% after falling to 2.706% early in the session. Expectations were high a few weeks ago that the Federal Reserve would aggressively hike interest rates to tackle inflation, but recent data has suggested a weakening economy, said Lou Brien, market strategist at DRW Trading. "The drift of the data lately has been on the weak side, notably those new home sales were pretty darn bad," he said. New home sales plunged a more-than-expected 16.6% in April to a seasonally adjusted annual rate of 591,000 units, the Commerce Department said on Tuesday. "The market has got a little too far over its skis, as far as how the economy was going to go and how the Fed was going to go," Brien said. Minutes released on Wednesday from a Fed policy meeting three weeks ago suggest the Fed could pause hiking rates in September after two hikes of 50 basis points each in June and July put its policy rate close to neutral. The market has been waiting for data at the macro level to confirm slower economic growth, but micro data from corporations is providing ample evidence, said Steven Ricchiuto, U.S. chief economist at Mizuho Securities USA LLC. "A lot of what's happening are corporate announcements. Apple today, don't ignore it," Ricchiuto said. Apple Inc plans to keep iPhone production for 2022 roughly flat at about 220 million units, Bloomberg News reported, as China's COVID-19 curbs, global supply-chain issues and cooling demand hurt smartphone makers. "People are buying in to the view that the economy is getting hit, and the economy getting hit is going to bring down inflation," Ricchiuto said. Two-year Treasury yields, which typically move in step with interest rate expectations, fell 0.8 basis point to 2.494%, a sharp drop from a more than three-year high of 2.844% in early May. The Treasury Department sold $42 billion of seven-year notes at a high yield of 2.777%. The auction was very strong with the high yield more than 2 basis points lower than the yield at the bidding deadline, Brien said. A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at 26.0 basis points. The yield on the 30-year Treasury bond was up 1.9 basis points at 2.984%. The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.989%. The 10-year TIPS breakeven rate was last at 2.649%, indicating the market sees inflation averaging about 2.6% a year for the next decade. The U.S. dollar five years forward inflation-linked swap , seen by some as a better gauge of inflation expectations due to possible distortions caused by the Fed's quantitative easing, was last at 2.493%. May 26 Thursday 3:49 PM New York / 1949 GMT Price Current Net Yield % Change (bps) Three-month bills 1.045 1.0623 -0.011 Six-month bills 1.47 1.5016 -0.002 Two-year note 100-3/256 2.494 -0.008 Three-year note 100-80/256 2.6396 0.009 Five-year note 99-144/256 2.7192 0.003 Seven-year note 100-176/256 2.7651 0.004 10-year note 101-8/256 2.7559 0.009 20-year bond 101-24/256 3.1755 0.028 30-year bond 97-216/256 2.9843 0.019 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 30.25 2.50 spread U.S. 3-year dollar swap 16.00 1.00 spread U.S. 5-year dollar swap 4.75 1.25 spread U.S. 10-year dollar swap 7.00 0.50 spread U.S. 30-year dollar swap -22.75 0.50 spread (Reporting by Herbert Lash in New York Editing by Jonathan Oatis and Matthew Lewis)

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