April 10, 2019 / 2:01 PM / 13 days ago

TREASURIES-Yields fall after benign core U.S. inflation data

    By Gertrude Chavez-Dreyfuss
    NEW YORK, April 10 (Reuters) - U.S. Treasury yields slipped
on Wednesday, weighed down by tepid underlying U.S. inflation in
March, reinforcing expectations that the Federal Reserve would
hold interest rates steady or possibly cut them by the end of
the year.
    "There is a persistent trend of inflation underperformance
that may soon become problematic for the Fed," said Ian Lyngen,
head of U.S. rates strategy at BMO Capital Markets in New York. 
    Data showed that last month's U.S. core consumer prices, a
key inflation gauge that the Fed monitors, rose 0.1 percent,
lower than expectations of a 0.2 percent increase. Headline
inflation, though, advanced 0.4 percent in March, boosted by
rising gasoline prices and rents.
    That said, some analysts believed that while the near-term
inflation outlook seemed benign after the data, higher oil
prices in the first quarter that have extended through the
second could nudge consumer prices higher this year.
    "The upside inflation risks for 2019 may be somewhat greater
than the market appreciates," said Action Economics in its daily
blog on Wednesday.
    Further pressuring yields that have pushed U.S. Treasury
prices higher was the rally in the European bond market in the
wake of downbeat comments on the economy by European Central
Bank President Mario Draghi, said Tom di Galoma, managing
director at Seaport Holdings in New York.
    The ECB's top official said risks to the euro zone economy
remained tilted to the downside and that headline inflation is
likely to decline over the coming months.
    His comments followed the ECB's dovish turn in March during
its last monetary policy meeting when it restarted its stimulus
program through a new round of cheap loans to banks.
    German government bond yields fell to a session low
 after Draghi's comments on Wednesday, while Italian
bond yields extended their falls and were last down four basis
points on the day at 2.54 percent.
    Investors now turn their attention to the minutes of the
last Fed meeting, which offers a peek into the U.S. central
bank's thinking as it navigates through what is probably the end
of its tightening cycle. 
    In midmorning trading, U.S. 10-year note yields fell to
2.475%, down from 2.499% late on Tuesday.
    U.S. 30-year bond yields also dipped to 2.895%
from 2.909% on Tuesday.
    On the short end of the curve, U.S. 2-year yields slipped to
2.321%, compared with Tuesday's 2.344%.
    Later on Wednesday, the Treasury auctions $24 billion in
U.S. 10-year notes, part of $78 billion in coupon offerings this
      April 10 Wednesday 9:52AM New York / 1352 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             2.375        2.4225    -0.007
 Six-month bills               2.3925       2.4554    -0.010
 Two-year note                 99-221/256   2.3212    -0.023
 Three-year note               99-240/256   2.2717    -0.030
 Five-year note                99-74/256    2.277     -0.027
 Seven-year note               99-60/256    2.3698    -0.027
 10-year note                  101-80/256   2.4738    -0.025
 30-year bond                  102-32/256   2.8931    -0.016
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        10.00         1.00    
 U.S. 3-year dollar swap         6.50         0.00    
 U.S. 5-year dollar swap         3.75         0.50    
 U.S. 10-year dollar swap       -1.75         0.25    
 U.S. 30-year dollar swap      -24.75         0.00    
 (Reporting by Gertrude Chavez-Dreyfuss; editing by Jonathan
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