November 15, 2017 / 3:39 PM / a month ago

TREASURIES-U.S. yield curve flattest in 10 years after U.S. data

 (Updates prices, adds comment, table, byline)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Nov 15 (Reuters) - The U.S. Treasury yield curve
flattened to a 10-year low on Wednesday after data showed a
slight pickup in U.S. inflation, as the market priced in further
interest rate hikes from the Federal Reserve next year.
    The flattening of the yield curve reflects expectations that
the Fed will continue to tighten interest rates, pushing yields
on the short end higher. At the same time, U.S. inflation,
although trending higher, will remain subdued, limiting yields
on longer-dated bonds.
    The gap between U.S. two-year note and U.S. 10-year note
yields contracted to 63 basis points, the flattest since
November 2007.
    The difference in five-year and 30-year yields also narrowed
to 75 basis points, the flattest in  nearly two
weeks.
    U.S. consumer prices, meanwhile, barely rose in October, but
rising rents and healthcare costs pointed to a gradual buildup
in underlying inflation.
    "What we saw today was actually good news on inflation: It
is normalizing and that is what the Fed wants," said Bruno
Braizinha, interest rates strategist, at Societe Generale in New
York. 
    Another report showed U.S. retail sales unexpectedly rose
0.2 percent in October, while the data for September was revised
to show sales jumping 1.9 percent rather than the previously
reported 1.6 percent advance.
    "This morning's reports will be the last CPI and retail
sales reports the Fed will have before heading into their
December meeting, and we believe they clear the fairly low bar
set by Fed speakers for the FOMC (Federal Open Market Committee)
to go ahead with a hike at next month’s meeting," said Michael
Feroli, an economist at JP Morgan in New York.
    In midmorning trading, the 10-year Treasury yield
 fell to 2.345 percent, from 2.381 percent late on
Tuesday.
    The U.S. two-year yield was at 1.691 percent,
unchanged from Tuesday.
    U.S. 30-year bond yields slid to 2.798 percent,
down from Tuesday's 2.839 percent.
    
    November 15 Wednesday 10:26AM New York / 1526 GMT
                               Price                  
 US T BONDS DEC7               153-24/32    0-28/32   
 10YR TNotes DEC7              125          0-68/256  
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.2525       1.2739    0.003
 Six-month bills               1.3675       1.3961    0.000
 Two-year note                 99-162/256   1.6915    0.000
 Three-year note               99-218/256   1.8011    -0.011
 Five-year note                99-208/256   2.0399    -0.025
 Seven-year note               100-44/256   2.2231    -0.034
 10-year note                  99-44/256    2.3434    -0.038
 30-year bond                  99-12/256    2.7972    -0.042
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        17.50        -1.00    
 spread                                               
 U.S. 3-year dollar swap        17.00         0.00    
 spread                                               
 U.S. 5-year dollar swap         5.75         0.00    
 spread                                               
 U.S. 10-year dollar swap       -1.75         0.25    
 spread                                               
 U.S. 30-year dollar swap      -24.75         0.25    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Chizu
Nomiyama and Jonathan Oatis)
  

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