May 30, 2017 / 2:48 PM / in 7 months

TREASURIES-Yields dip on month-end buying, U.S. inflation data

    * Month-end buying for portfolio rebalancing pushes yields
lower
    * Year-over-year core PCE price index at 1.5 pct in April
    * U.S. data stokes doubts over 2017 Fed rate hikes past June

    By Sam Forgione
    NEW YORK, May 30 (Reuters) - U.S. benchmark and long-dated
Treasury yields fell to their lowest levels in more than a week
on Tuesday on month-end buying and after U.S. inflation data
reinforced doubts that the Federal Reserve would raise interest
rates more than one more time in 2017. 
    Purchases of U.S. government debt for month-end portfolio
rebalancing was the main catalyst for the move lower in yields,
analysts said, while a drop in the core PCE price index to 1.5
percent in the 12 months through April from 1.6 percent in March
reinforced views that the Fed might not raise rates again after
June and contributed marginally to the yield drop. 
    While the core PCE price index bounced back 0.2 percent
after dipping 0.1 percent in March, the dip in the
year-over-year reading stoked investor concerns about recent low
U.S. inflation prints. The core PCE, which excludes food and
energy, is the Fed's preferred inflation measure and the central
bank has a 2 percent target.
    Benchmark 10-year U.S. Treasury yields touched
2.224 percent, their lowest in 11 days, while 30-year yields
touched 2.885 percent to mark their lowest in 12 days. 
    "More than anything, we're seeing just a little bit better
buying here at a month-end extension," said John Briggs, head of
strategy Americas at RBS Securities in Stamford, Connecticut.
    While the U.S. inflation data weighed further on investors'
expectations for Fed rate increases this year past June, it did
not alter expectations for a rate hike next month, with rates
futures on Tuesday last implying traders saw a nearly 89 percent
chance of a hike next month from about 88 percent on Friday
according to CME Group's FedWatch tool. 
    Those doubts that the Fed would hike rates again this year
after June lingered even as Dallas Fed President Robert Kaplan
told cable television network CNBC on Tuesday that he expected
two more rate hikes this year.
    "June is priced in, but after that very little is priced
in," said Subadra Rajappa, head of U.S. rates strategy at
Societe Generale in New York. 
    Benchmark 10-year Treasuries were last up 6/32 in price to
yield 2.227 percent, from a yield of 2.250 percent late Friday.
Short-dated three-year Treasuries, which are more vulnerable to
Fed rate hikes, were last up 1/32 in price to yield 1.446
percent, from a yield of 1.459 percent late Friday. 

      May 30 Tuesday 10:35AM New York / 1435 GMT
                               Price                  
 US T BONDS JUN7               154-16/32    0-19/32   
 10YR TNotes JUN7              126-92/256   0-44/256  
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.93         0.945     0.010
 Six-month bills               1.065        1.0855    0.010
 Two-year note                 99-234/256   1.2936    -0.008
 Three-year note               100-42/256   1.443     -0.016
 Five-year note                99-230/256   1.7713    -0.020
 Seven-year note               99-184/256   2.0433    -0.022
 10-year note                  101-80/256   2.2272    -0.023
 30-year bond                  102-40/256   2.8919    -0.024
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        22.75       ******    
 spread                                               
 U.S. 3-year dollar swap        20.75       ******    
 spread                                               
 U.S. 5-year dollar swap         7.75       ******    
 spread                                               
 U.S. 10-year dollar swap       -5.50       ******    
 spread                                               
 U.S. 30-year dollar swap      -44.00       ******    
 spread                                               
 
 (Reporting by Sam Forgione; Editing by Frances Kerry)
  

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