TREASURIES-U.S. yields edge lower ahead of Fed rate decision

By Herbert Lash NEW YORK, July 27 (Reuters) - Treasury yields edged lower on Wednesday hours before the Federal Reserve is expected to raise interest rates by 75 basis points to curb inflation and attempt to steer the U.S. economy from recession and a hard landing. The bond market already is pricing in an economic slowdown, if not a recession, as seen in the inversion of two- and 10-year Treasury note yields. The short-end of the yield curve has been higher than the long end nearly all month, with the gap widening to -28.4 basis points on Wednesday. The two-year yield rose 1.2 basis points to 3.055% as the 10-year note declined 1.8 basis points to 2.769%. The Ukraine war, an energy crunch caused by supply cuts to the Nord Stream 1 gas pipeline, the bubble implosion of crypto currencies and the red-hot U.S. housing market showing signs of peeking signal the economic expansion's end, said Jimmy Chang, chief investment officer of the Rockefeller Global Family Office. "I do give a lot of credence to the two and 10s yield curve, and it's natural that every cycle when we get to the inversion, you will hear the bulls arguing that this time is different," Chang said. "Then of course when we eventually wind up with a recession, we look back and say, 'Ah ha, it worked again!'" Chang added. Another closely watched part of the yield curve, the gap between three-month bills and 10-year notes, narrowed to 25.9 basis points, down from a spread of 118.51 at the close on July 1. An inversion also could signal recession. The Fed will release a statement at the end of a two-day policy meeting at 2 p.m. (1800 GMT). Jim Vogel, interest rate strategist at FHN Financial in Memphis, said it is doubtful the Fed will say or print anything that will provide any assistance or market guidance. "The Fed has put itself into a zone where individual meetings are important only if they bring surprises and as they do that, the size of the surprise necessary to move markets escalates," Vogel said. "We're completely agnostic with regards to what the Fed will indicate or not indicate." The yield on the 30-year Treasury bond was down 1.3 basis points to 2.995%. The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.576%. The 10-year TIPS breakeven rate was last at 2.356%, indicating the market sees inflation averaging about 2.4% a year for the next decade. The U.S. dollar 5 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 2.414%. July 27 Wednesday 10:21AM New York / 1421 GMT Price Current Net Yield % Change (bps) Three-month bills 2.45 2.4995 -0.030 Six-month bills 2.88 2.9631 -0.016 Two-year note 99-234/256 3.0446 0.002 Three-year note 100-8/256 2.9886 -0.002 Five-year note 99-134/256 2.853 -0.026 Seven-year note 102-148/256 2.837 -0.031 10-year note 100-244/256 2.763 -0.024 20-year bond 100-32/256 3.2412 -0.014 30-year bond 97-164/256 2.9951 -0.013 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 24.50 1.25 spread U.S. 3-year dollar swap 9.00 0.75 spread U.S. 5-year dollar swap 1.75 1.25 spread U.S. 10-year dollar swap 7.75 0.25 spread U.S. 30-year dollar swap -24.50 0.00 spread (Reporting by Herbert Lash; Editing by Will Dunham)