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Bond Yields Fall as Wall Street Worries About Higher Fed Rates

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Treasury yields pulled back Wednesday as investors pondered the outlook for the U.S. economy and weighed more economic data that could impact the Federal Reserve's monetary policy plans.

The 10-year Treasury yield last traded about 9 basis points lower at 3.42%, while the 2-year rate shed about 10 basis points to 4.264%.

Yields and prices have an inverted relationship, with one basis point equalling 0.01%.

Recent economic data has painted a mixed picture of the U.S. economy, prompting some investors to believe that interest rates will need to stay elevated for longer as the Fed battles persistently high inflation.

After four consecutive 75 basis point interest rate hikes, the Fed is widely expected to increase rates by 50 basis points at its December meeting next week. Many investors are concerned about the pace of rate hikes leading the U.S. economy into a recession.

"Bottom line, the economic outlook is turning for the worse (outside of the labor market) and if that continues, it will support the long end of the curve," wrote Tom Essaye of the Sevens Report in a note to clients, adding that the widening spread between the 2-year and 10-year notes "forecasts a major slowing (and contraction) of growth, but no relief from the Fed."

A series of upcoming economic data releases could offer further clarity to investors ahead of the Fed's meeting next week. Jobless claims data comes out Thursday, followed by November's producer price index and preliminary consumer sentiment data for December on Friday.

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