February 14, 2018 / 8:37 PM / 10 months ago

TREASURIES-Yields advance after rising U.S. inflation

 (Updates prices, table, adds graphic)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Feb 14 (Reuters) - U.S. Treasury yields on most
maturities rose on Wednesday, with those on benchmark 10-year
notes hitting a four-year high, boosted by data showing consumer
prices in the world's largest economy gained more than expected
last month, with underlying inflation posting its largest
monthly increase in a year. 
    The report appeared to cement expectations of a rate hike by
the Federal Reserve in March despite U.S. retail sales posting
their largest decline in 11 months.
    Wednesday's data showed that the consumer price index
increased 0.5 percent in January, with households paying more
for gasoline and rent, compared with a 0.2 percent rise in
December.
    Excluding the volatile food and energy components, the CPI
grew 0.3 percent, the biggest increase since January 2017,
compared with 0.2 percent growth in December.
    Investors have agonized in the last two weeks over the
prospect of rising inflation after the January jobs reported
showed a 2.9 percent increase in wages. The fear was that
quicker inflation would lead to higher interest rates, raising
borrowing costs for both individuals and corporations.
    The CPI data has been offset, however, by a report
indicating that U.S. retail sales fell 0.3 percent last month,
the biggest decline in 11 months. Data for December was revised
to show sales unchanged instead of rising 0.4 percent as
previously reported.
    Fed funds futures on Wednesday priced in a more than 80
percent chance of an interest rate increase at next month's Fed
policy meeting, and a roughly 60 percent possibility of a move
in June, according to the CME's FedWatch.
 
   
    "Today's results fit the recent narrative that rates are
moving higher on inflation concerns, and risk assets, or at
least equity values have become sensitive to those higher
yields," said Marvin Loh, senior global market strategist at BNY
Mellon in Boston.
    "While CPI gains were the focus, the poor retail sales
results have added an additional complexity of at least
questioning the strength of the consumer entering 2018."
    In late trading, U.S. benchmark 10-year Treasury note yields
rose to 2.916 percent, from 2.84 percent late on
Tuesday. Earlier in the session, 10-year yields hit a four-year
peak of 2.919 percent.
    U.S. 30-year yields increased to 3.179 percent
from Tuesday's 3.128 percent.
    U.S. 2-year yields, the maturity most sensitive
to rate-hike expectations, advanced to a two-week high of 2.176
percent, compared with 2.106 percent on Tuesday. Two-year yields
were last at 2.175 percent.
    
      February 14 Wednesday 3:18PM New York / 2018 GMT
                               Price                  
 US T BONDS MAR8               143-9/32     -1-9/32   
 10YR TNotes MAR8              120-72/256   -0-184/2  
                                            56        
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.5575       1.5854    -0.023
 Six-month bills               1.7625       1.803     0.000
 Two-year note                 99-170/256   2.1759    0.070
 Three-year note               99-144/256   2.402     0.090
 Five-year note                98-190/256   2.6472    0.098
 Seven-year note               97-216/256   2.8436    0.093
 10-year note                  98-140/256   2.9186    0.079
 30-year bond                  96-136/256   3.1803    0.052
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        27.00         1.75    
 spread                                               
 U.S. 3-year dollar swap        18.50         1.00    
 spread                                               
 U.S. 5-year dollar swap         9.50         0.50    
 spread                                               
 U.S. 10-year dollar swap        1.50         1.00    
 spread                                               
 U.S. 30-year dollar swap      -16.75         1.25    
 spread                                               
 
    
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by G Crosse and
Lisa Shumaker)
  
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