May 10, 2019 / 3:35 PM / 12 days ago

UPDATE 2-U.S. TIPS breakeven rates rise as trade fears simmer down

(Updates market action, adds quotes, graphic)

By Richard Leong

NEW YORK, May 10 (Reuters) - The U.S. bond market’s gauges on investors’ inflation views rose on Friday, reversing an earlier drop, on reduced jitters about a trade war between China and the United States even as Washington imposed a fresh round of levies on Chinese imports.

Reduced anxiety about the U.S.-China trade conflict offset earlier data that showed domestic consumer prices grew less than analyst expectations in April.

“Things are going out a bit more positive,” said James Barnes, director of fixed income at The Bryn Mawr Trust Co in Devon, Pennsylvania. “Things are not as dire as previously thought, but uncertainty still looms.”

The United States early on Friday increased its tariffs on $200 billion in Chinese goods to 25% from 10%, which is expected to lead China to retaliate.

U.S. Trade Representative Robert Lighthizer, U.S. Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He held a second day of trade talks in Washington without a deal.

Both sides said they agreed to meet again in Beijing in the future.

“The market is digesting what has happened with an acknowledgement there are ongoing talks,” said Bill Northey, senior investment director at U.S. Bank Wealth Management in Helena, Montana.

Oil prices have fallen this week on worries the absence of a trade agreement between the world’s two biggest economies might cause a trade war and trigger a global economic slowdown.

U.S. crude futures were down 0.15% at $61.61 a barrel in afternoon U.S. trading.

Meanwhile, the government said on Friday its consumer price index, its broadest inflation gauge, rose 0.3% in April, less than the 0.4% increase analysts polled by Reuters had forecast.

In the 12 months through April, the CPI increased 2.0%, below the 2.1% projected by analysts.

The yield spread between 10-year Treasury Inflation Protected Securities and regular 10-year Treasuries was 1.872%, up 1.3 basis points from late on Thursday, Tradeweb data showed. It had fallen as low as 1.839% earlier Friday, within striking distance of 1.835% set on Thursday, which was the lowest since March 27.

The 10-year TIPS breakeven rate has since fallen from a near six-month high of 1.979% set on April 25.

The five-year breakeven rate had fallen to 1.700%, the lowest since Feb. 7, before retracing to 1.748%, up 0.95 basis points on the day.

Reporting by Richard Leong Editing by Chizu Nomiyama, Susan Thomas and Jonathan Oatis

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