January 11, 2019 / 7:02 PM / 9 days ago

TREASURIES-Prices gain as stock markets falter

 (Updates prices)
    * Weak stock markets boosts bond buying
    * End of new Treasury supply removes weight from market
    * U.S. consumer prices fell in December

    By Karen Brettell
    NEW YORK, Jan 11 (Reuters) - U.S. Treasury debt prices
gained on Friday as stocks weakened in choppy trading, and as
bonds were also helped by the weight of new Treasury supply this
week being lifted from the market.
    Stocks fell after rallying for the past five sessions on
hopes of a resolution in the U.S.-China trade dispute and
assurances from the Federal Reserve that it would be patient on
interest rate hikes.     
    Bonds have benefited from safety buying in recent months
when stocks fall.
    “Stocks are a little weaker. They really have dictated the
direction of Treasury trading for a while now,” said Thomas
Simons, a money market economist at Jefferies in New York.
    The U.S. Labor Department said on Friday its Consumer Price
Index dipped 0.1 percent last month amid a plunge in gasoline
prices, though underlying inflation pressures remained firm as
rental housing and healthcare costs rose steadily.             
    Bonds were further aided by the completion of $78 billion
this week in new coupon-bearing Treasury supply, which has
weighed on longer-dated bonds.
    Benchmark 10-year notes             gained 10/32 in price to
yield 2.697 percent, down from 2.731 percent late Thursday.
    Yields have risen from one-year lows reached a week ago on
improving risk appetite since Federal Reserve Chairman Jerome
Powell said on Friday that he was aware of the risks of an
economic slowdown and that the U.S. central bank will be patient
and flexible in policy decisions this year.
     Powell on Thursday stressed again that the Fed can be
patient in approving any further rate increases, saying that
"especially with inflation low and under control, we have the
ability to be patient and watch patiently and carefully.”
            
    The yield curve also steepened after minutes from the Fed’s
December meeting, released on Wednesday, showed that a range of
policymakers said they could be patient about future rate
increases and a few did not support the bank's rate hike that
month.             
    Trade talks between the United States and China and the
ongoing partial U.S. government shutdown remain headwinds for
markets.
    A trade deal with China could be significant, if reached. 
“If we get some indication of progress on that front that could
really open things up, it could have a pretty dramatic impact on
the inflation environment and change expectations for the Fed
too,” Simons said.

 (Reporting by Karen Brettell in New York
Editing by James Dalgleish)
  
 
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