March 17, 2017 / 7:41 PM / 3 years ago

TREASURIES-Yields dip after soft U.S. March inflation reading

    * U Mich March data shows soft U.S. inflation
    * Data suggests risk of more dovish Fed
    * Yields set for biggest weekly drops in three

 (New throughout, updates prices and market activity, adds
analyst comment)
    By Sam Forgione
    NEW YORK, March 17 (Reuters) - U.S. Treasury yields edged
lower on Friday after data showing low inflation in March
suggested that the Federal Reserve could aim for a slower pace
of interest rate hikes this year than it had forecast on
    U.S. 30-year and 10-year Treasury
yields, which benefit from low inflation since reduced
purchasing power erodes their interest payouts, fell about two
basis points after preliminary University of Michigan data
showing low inflation in early March.
    Traders are watching inflation for clues on the path of the
Fed, which after a two-day policy meeting on Wednesday
disappointed those who expected a more hawkish pace of rate
increases. Instead, it stuck to its outlook for two more hikes
this year and three in 2018.
    "The reason for the rates rally in the aftermath was the
5-10 year inflation print which fell to a record low of 2.2
percent, which was the lowest level since the survey started in
1979," said Aaron Kohli, an interest rate strategist at BMO
Capital Markets in New York, in a research note. 
    Yields remained within recent ranges and remained above
Thursday's session lows. Two-year notes, considered
most vulnerable to Fed policy, were last up slightly in price,
with the yield slipping to 1.321 percent from 1.324 percent late
    On Wednesday, the Fed raised rates for the second time in
three months, as expected. The data, showing slowing inflation,
could discourage a more hawkish hiking cycle, analysts said.
    Benchmark 10-year Treasuries were last up 6/32 in price to
yield 2.502 percent, from a yield of 2.524 percent late
Thursday. Those yields hit a 10-day low of 2.486 percent in
overnight trading Thursday and were on track for their biggest
weekly decline in three, of about 8 basis points. 
    Yields on other Treasuries maturing between two and 30 years
were set for their biggest weekly drop in three weeks, with
two-year yields on track to fall about 4 basis points for the
    An Opinionway poll showing French presidential candidate
Marine Le Pen extended her lead over rival Emmanuel Macron in
the first round of the country's election also pushed Treasury
yields lower, said Shyam Rajan, head of U.S. Rates Strategy at
Bank of America Merrill Lynch in New York. Le Pen leads the
anti-European Union, anti-immigration National Front.

    March 17 Friday 3:29PM New York / 1929 GMT
 US T BONDS JUN7               148-14/32    0-18/32   
 10YR TNotes JUN7              123-192/256  0-40/256  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.7175       0.7287    -0.005
 Six-month bills               0.85         0.8654    -0.011
 Two-year note                 99-160/256   1.3208    -0.003
 Three-year note               100-14/256   1.6061    -0.006
 Five-year note                99-80/256    2.0217    -0.008
 Seven-year note               98-212/256   2.3085    -0.017
 10-year note                  97-208/256   2.5005    -0.023
 30-year bond                  97-208/256   3.1128    -0.022
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        33.50         0.25    
 U.S. 3-year dollar swap        25.50         0.75    
 U.S. 5-year dollar swap        10.25         0.50    
 U.S. 10-year dollar swap       -3.25         0.75    
 U.S. 30-year dollar swap      -38.00         1.25    
 (Editing by Bernadette Baum and David Gregorio)
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