Treasury yields little changed

US Treasury yields were little changed on Wednesday with the yield curve remaining near its flattest in nearly 11 years as Federal Reserve Chairman Jerome Powell stayed on message about a healthy economy before a US House of Representatives committee. Powell's appearance was the second half of his semiannual testimony before Congress.
"He's been constructive on the economy and downplayed the risk of a recession," said Jonathan Cohn, interest rate strategist with Credit Suisse in New York. Powell's answers to questions from members of the House Financial Services Committee struck a chord similar to the one he sounded before the Senate Banking Committee on Tuesday. His message supported traders' expectations that the US central bank would increase key overnight borrowing costs two more times in 2018.
The futures market implied traders saw a 63 percent chance the Fed would increase its target range on key interest rates twice more this year, CME Group's FedWatch program showed. Powell acknowledged the risk from the trade friction between the United States and its major trade partners.
"If this process leads to a world of higher tariffs on a wide range of goods and services that are traded and those are sustained for a longer period of time, if it results in a more protectionist world, that would be bad for our economy," he said. After Powell's testimony, the Fed released its latest Beige Book which showed the economy was growing at a moderate to modest pace in June to early July even as manufacturers expressed concerns about the impact of tariffs.
The possibility of further rate increases pinned the two-year yield near its highest since August 2008. It was last 2.611 percent, down 0.4 basis point from late on Tuesday. The spread between two-year and 10-year Treasury yields was 25.80 basis points after touching 23.40 earlier Wednesday, its tightest since July 2007.
Analysts and traders are worried about the yield curve inverting - when shorter-dated yields are higher than longer-dated ones. That is seen as a reliable sign of a US recession, although Powell downplayed the flattening yield curve as an omen of slower growth. The yield on the benchmark 10-year Treasury note was up nearly 1 basis point on the day at 2.871 percent.
Treasury yields hit session lows earlier, following a government report showing that domestic housing starts fell to a nine-month low in June on rising costs and land shortage.