February 15, 2018 / 7:53 PM / in 10 months

TREASURIES-U.S. yields drift lower, but uptrend seen intact

 (Adds 30-year TIPS auction, graphic, analyst comment, updates
prices, table)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Feb 15 (Reuters) - U.S. Treasury yields slipped on
Thursday after sizable gains in recent sessions, as investors
took a breather from selling bonds and readjusted positions to
prepare for more inflation-related volatility, a scenario that
could take yields even higher.
    U.S. benchmark 10-year yields, which move inversely to
prices, earlier hit a fresh four-year high of 2.944 percent,
before pulling back. So far this year, 10-year yields have
climbed nearly 50 basis points.
    U.S. two-year yields, the maturity most sensitive to rate
hike expectations, also came off from nine-year peaks.
    John Taylor, president and founder of research firm Taylor
Global Vision in New York, said yields are headed higher again
into late March, which would be a major high.
    "Maybe the market doesn't see serious trouble ahead for the
economy, or it's just biding its time," Taylor said. "The way we
see it, regardless of how well the world economy is doing, the
tipping point for rates is when equities begin a sustained
decline. Our cycles indicate it begins in early May."
    Economic data on Thursday had little impact on the Treasury
market, but it did provide further evidence of the rising
inflation trend with gains in U.S. producer prices.
    Fed fund futures continue to price in a more than 80 percent
chance the Fed will raise rates next month, and a 60 percent
possibility of further tightening in June.
    "When we came into this year, the four-rate hike scenario
was popular but not the consensus. Today, it's almost a full
consensus," said Jim Vogel, interest rates strategist at FTN
Financial in Memphis, Tennessee.
    In late trading, U.S. benchmark 10-year Treasury note yields
fell to 2.896 percent, from 2.913 percent late on
Wednesday. Earlier in the session, 10-year yields hit a more
than four-year peak of 2.944 percent.
    U.S. 30-year yields dropped to 3.146 percent
from Wednesday's 3.177 percent.
    U.S. 2-year yields, meanwhile, rose to 2.184
percent, compared with 2.172 percent on Wednesday. Two-year
yields earlier hit a more than nine-year peak of 2.213 percent.
    The U.S. Treasury's auction of $7 billion in 30-year
Treasury Inflation-Protected Securities on Thursday showed mixed
results, with a yield of 1.003 percent, the highest at an
auction of this maturity in two years, Treasury data showed.

    The ratio of bids to the amount of 30-year TIPS offered was
2.31, the lowest reading in a year. Analysts said the somewhat
lukewarm response to the auction seem to suggest acute inflation
fears for now.
      Thursday, Feb. 15 at 1446 EST (1946 GMT):
 US T BONDS MAR8               143-30/32    0-18/32   
 10YR TNotes MAR8              120-108/256  0-24/256  
                               Price        Current   Net
                                            Yield     Change
                                            (pct)     (bps)
 Three-month bills             1.57         1.5981    0.010
 Six-month bills               1.78         1.821     0.018
 Two-year note                 99-166/256   2.1844    0.012
 Three-year note               99-144/256   2.4021    0.005
 Five-year note                98-198/256   2.6405    0.000
 Seven-year note               97-244/256   2.8261    -0.010
 10-year note                  98-188/256   2.8967    -0.016
 30-year bond                  97-40/256    3.1472    -0.030
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        27.75         0.50    
 U.S. 3-year dollar swap        20.25         1.50    
 U.S. 5-year dollar swap        10.00         0.50    
 U.S. 10-year dollar swap        1.50         0.25    
 U.S. 30-year dollar swap      -16.50         0.00    
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Jonathan
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