TREASURIES-Yields near six-week lows, Fed hawkishness in question

 (Recasts with milestone, adds details, updates prices)
    By Karen Brettell
    NEW YORK, May 27 (Reuters) - U.S. Treasury yields ended near
six-week lows on Friday as concerns about growth and signs that
inflation may have peaked led investors to speculate that the
Federal Reserve may not raise rates as much as previously
    Benchmark 10-year yields have dropped from 3-1/2 year highs
reached earlier this month on concerns that the U.S. central
bank's aggressive rate hikes could tip the economy into
    Now, those fears have also increased speculation that the
Fed could pivot to a more dovish stance if the economy cools.
    “That’s been this week’s story ... people questioning how
high the terminal rate will ultimately be, but I think it’s
still going to be too soon to say with any high conviction just
given the fact that we’re going to need to see more inflation
data,” said Benjamin Jeffery, interest rate strategist at BMO
Capital Markets in New York.
    Fed funds futures traders are pricing in 50 basis point
hikes at each of the Fed’s June and July meetings, and a chance
of a similar move in September.
    They have pared their expectations on how high the Fed will
ultimately raise its benchmark rate, with the federal funds rate
now expected to be at 2.89% in March, compared with expectations
on Monday of 3.03%. It is currently at 0.83%.

    Benchmark 10-year note yields fell two basis
points to 2.743%. They are holding just above a six-week low of
2.706% reached on Thursday and are down from 3.203% on May 9.
    The yield curve between two-year and 10-year notes
 flattened one basis point to 26 basis points.
    Yields briefly bounced after data showed that inflation
eased in April, boosting hopes that the economy will suffer less
damage if the worst of soaring price pressures have passed.
    The personal consumption expenditures (PCE) price index
gained 0.2% last month after shooting up 0.9% in March. In the
12 months through April, the PCE price index advanced 6.3% after
jumping 6.6% in March. 
    U.S. consumer spending also rose more than expected in April
as households boosted purchases of goods and services, which
could underpin economic growth in the second quarter.
    Jobs data for May released next Friday is the next major
U.S. economic focus. It is expected to show that employers added
320,000 jobs during the month, according to the median estimate
of economists polled by Reuters.
    May 27 Friday 3:00PM New York / 1900 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.065        1.0825    0.028
 Six-month bills               1.4975       1.5296    0.034
 Two-year note                 100-8/256    2.4839    -0.004
 Three-year note               100-78/256   2.6419    0.011
 Five-year note                99-138/256   2.7242    0.007
 Seven-year note               99-224/256   2.7698    0.005
 10-year note                  101-36/256   2.7432    -0.015
 20-year bond                  101-72/256   3.1629    -0.020
 30-year bond                  98-24/256    2.9715    -0.021
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap       280.25       249.50    
 U.S. 3-year dollar swap       280.75       264.25    
 U.S. 5-year dollar swap         4.50        -0.50    
 U.S. 10-year dollar swap        7.25        -0.25    
 U.S. 30-year dollar swap      -23.00        -0.75    
 spread (Reporting by Karen Brettell
Editing by Nick Zieminski)