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TREASURIES-Prices gain on North Korean concerns
September 22, 2017 / 1:47 PM / a month ago

TREASURIES-Prices gain on North Korean concerns

    * North Korean fears pauses bond selloff
    * Treasury yield curve flattest since 2007

    By Karen Brettell
    NEW YORK, Sept 22 (Reuters) - U.S. Treasury prices gained on
Friday on concerns about conflict with North Korea, which said
it might test a hydrogen bomb over the Pacific Ocean, and as
investors closed positions before the weekend.
    North Korean leader Kim Jong Un promised on Friday to make a
"mentally deranged" Donald Trump pay dearly for his threats,
after the U.S. president vowed to destroy the country.
            
    The threat halted a bond selloff sparked by the Federal
Reserve taking a more hawkish tone than investors had expected
at its September meeting, which concluded on Wednesday.
    “There’s much less selling in advance of the weekend,” said
Jim Vogel, an interest rate strategist at FTN Financial in
Memphis, Tennessee. “This has the initial appearance of not
going home with any particular rate views when North Korea and
the White House are in a bigger spat than they have been.”
    Benchmark 10-year notes             gained 9/32 in price to
yield 2.25 percent, down from 2.28 percent on Thursday.
    The U.S. Treasury yield curve flattened to its lowest levels
since late 2007 overnight, before retracing in the U.S. session,
as traders prepared for the likelihood that the U.S. central
bank will raise rates in December.
    New economic projections released after the Fed's meeting
showed 11 of 16 officials see the "appropriate" level for the
federal funds rate, the central bank's benchmark interest rate,
to be in a range between 1.25 percent and 1.50 percent by the
end of 2017, one-quarter of a point above the current level.
            
    That view comes despite still-sluggish inflation that many
investors have viewed as likely to crimp the Fed’s ability to
tighten monetary conditions.
    "There is not a lot of faith that yields can be sustainably
higher," said Aaron Kohli, an interest rate strategist at BMO
Capital Markets in New York.
    Intermediate-dated debt is highly sensitive to interest rate
increases, while longer-dated bonds are influenced by inflation
expectations.
    “The problem comes from the long-term implications of their
moves … what does that say about growth and inflation in the
long run? The market’s not very optimistic about that,” Kohli
said.
    The yield curve between five-year notes and 30-year bonds
               flattened to 91.1 basis points, the lowest level
since late 2007, before steepening back to 92.3 basis points. 

 (Editing by Meredith Mazzilli)
  
 
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