Bonds News

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

    * Month-end buying for portfolio rebalancing pushes yields
    * 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

 (Adds table, updates prices)
    By Sam Forgione
    NEW YORK, May 30 (Reuters) - Yields on most U.S. Treasury
bonds and notes 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. Also, 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.
    Yields on U.S. Treasuries maturing between three and 30
years hit their lowest levels in 12 days. Benchmark 10-year U.S.
Treasury yields touched 2.211 percent and 30-year
yields hit 2.881 percent. Three-year yields, which are
considered more vulnerable to Fed rate hikes, hit 1.432 percent.
    "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. 
    "The market is realizing that this underlying inflation that
the Fed is sort of looking at to hit targets, we’re not hitting
those and it looks like we’re topping out," said Justin
Hoogendoorn, head of fixed-income strategy at Piper Jaffray in
    Fed Governor Lael Brainard said Tuesday she is most
concerned with a lack of progress in pushing inflation up toward
a 2-percent goal in recent months.
    Benchmark 10-year Treasuries were last up 11/32 in price to
yield 2.212 percent, from a yield of 2.250 percent late Friday
    May 30 Tuesday 3:17PM New York / 1917 GMT
 US T BONDS JUN7               154-22/32    0-25/32   
 10YR TNotes JUN7              126-120/256  0-72/256  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.92         0.9348    0.000
 Six-month bills               1.0575       1.0778    0.003
 Two-year note                 99-238/256   1.2857    -0.016
 Three-year note               100-48/256   1.4349    -0.024
 Five-year note                99-246/256   1.7582    -0.033
 Seven-year note               99-212/256   2.0265    -0.039
 10-year note                  101-116/256  2.2115    -0.039
 30-year bond                  102-92/256   2.8818    -0.034
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        22.75       ******    
 U.S. 3-year dollar swap        20.50       ******    
 U.S. 5-year dollar swap         7.50       ******    
 U.S. 10-year dollar swap       -6.00       ******    
 U.S. 30-year dollar swap      -44.50       ******    

 (Reporting by Sam Forgione; Editing by Chizu Nomiyama)