TREASURIES-U.S. bond prices trim gains after PPI data

NEW YORK, July 12 Fri Jul 12, 2013 8:42am EDT

NEW YORK, July 12 (Reuters) - U.S. government debt prices pared gains on Friday after a stronger-than-expected reading on domestic producer prices reduced the likelihood of deflation which would hurt the U.S. economy.

Benchmark 10-year Treasury notes last traded 5/32 higher with a yield of 2.554 percent, down 1.8 basis points from late on Thursday.

In the inflation bond sector, the yield spread between the regular 10-year notes and 10-year Treasury Inflation Protected Securities widened slightly after the producer price data. This 10-year breakeven rate, which gauges investors' inflation expectations, edged up to 2.03 percent.