November 13, 2018 / 7:53 PM / a month ago

TREASURIES-U.S. yields fall to more than one-week low as oil prices tumble

    * U.S. oil prices plunge, boost Treasury prices
    * UK strikes draft Brexit deal with EU
    * Markets look to U.S. CPI, retail sales this week

 (Updates prices, adds new comment)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Nov 13 (Reuters) - U.S. Treasury yields slid to
more than one-week lows on Tuesday hurt by a sharp drop in oil
prices, which suggested lower inflation going forward and
affirmed a gradual pace of interest rate increases by the
Federal Reserve.
    Benchmark U.S. 10-year, 30-year, and two-year yields fell to
their lowest since Nov. 2.
    The Treasury market was closed on Monday for the Veterans
Day holiday.
    "If oil prices decline that should leave less inflation
because the cost of energy is lower and so you would expect
lower interest rates all else being equal," said Jon Hill, vice
president of U.S. fixed income strategy at BMO Capital Markets
in New York.
    U.S. crude oil futures were on track to close lower for a
record 12th straight session, down 6.5 percent at $56.06 per
barrel. Tuesday's sell-off was the worst yet.

    But the decline in yields amid the oil downdraft has been
mitigated somewhat, analysts said, by news that Britain struck a
draft divorce deal with the European Union after more than a
year of talks.
    Along with the positive Brexit news, the recovery on Wall
Street shares after a steep sell-off on Monday has also helped
limit the fall in yields.
    In afternoon trading, benchmark 10-year note yields fell to
3.150 percent from 3.189 percent late on Friday. 
Ten-year yields earlier fell to 3.143 percent, a more than
one-week low.
    U.S. 30-year yields were at 3.373 percent,
compared with Friday's 3.392 percent.
    On the short end of the curve, U.S. two-year yields declined
to 2.895 percent, from 2.932 percent on Friday. 
    This week, the market is looking at U.S. consumer prices and
retail sales on the economic data front.
    U.S. core CPI is expected to have risen slightly to 0.2
percent in October, from 0.1 percent the previous month.
    Michael Pearce, senior U.S. economist at Capital Economics,
believes U.S. core inflation may have already peaked.
    "The modest growth of unit labor costs and the appreciation
of the dollar this year suggest that core inflation is unlikely
to rise much further," wrote Pearce in a research note.
    "With inflation quiescent, we expect the Fed to continue
raising interest rates gradually and to move quickly to the
sidelines next year as economic growth slows below potential,"
he added. 
    
      November 13 Tuesday 2:42PM New York / 1942 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2.305        2.3498    -0.005
 Six-month bills               2.4525       2.5167    0.000
 Two-year note                 99-246/256   2.8953    -0.037
 Three-year note               99-200/256   2.9517    -0.049
 Five-year note                99-124/256   2.9874    -0.057
 Seven-year note               99-148/256   3.0676    -0.055
 10-year note                  99-212/256   3.1452    -0.044
 30-year bond                  100-28/256   3.3692    -0.023
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        18.75        -0.25    
 spread                                               
 U.S. 3-year dollar swap        16.50         0.25    
 spread                                               
 U.S. 5-year dollar swap        13.25         0.25    
 spread                                               
 U.S. 10-year dollar swap        5.75         0.00    
 spread                                               
 U.S. 30-year dollar swap      -10.75        -1.25    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Stephen
Orlofsky and Lisa Shumaker)
  
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