March 12, 2019 / 7:39 PM / in 7 days

TREASURIES-Yields fall after benign U.S. inflation data, Brexit woes

    * U.S. core, year-on-year CPI shows weak inflation
    * Brexit uncertainty weighs on U.S. yields
    * U.S. 10-year note auction shows strong demand

 (Adds comments, Brexit vote, auction results; updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, March 12 (Reuters) - U.S. Treasury yields tumbled
on Tuesday, pressured by weak inflation data for the world's
largest economy, supporting expectations the Federal Reserve
will hold interest rates steady this year, as well as worries
about Britain's exit from the European Union.
    U.S. benchmark 10-year note yields slid to the lowest level
in 10 weeks, while yields on 30-year bonds dropped to a
three-week trough, also falling after a 10-year note auction
showed strong demand.
    "There's probably some spillover from what's going on in
Britain, specifically Brexit, because the headlines coming out
of there have been profoundly discouraging," said Tom Simons,
money market senior economist at Jefferies in New York. Any type
of uncertainty or chaos arising from Brexit "would have an
impact on global growth prospects," he said.
    Concerns about Britain's exit from the European Union
boosted Treasury prices, which move inversely to yields, after
the British Parliament rejected Prime Minister Theresa May's
revised Brexit deal.
    In the United States, the Labor Department said its consumer
price index rose 0.2 percent in February on higher costs of
food, gasoline and rents. The index had been unchanged for the
prior three months.
    Excluding the volatile food and energy components, the CPI
edged up just 0.1 percent, the smallest increase since August
2018. In the 12 months through February, the CPI rose 1.5
percent, the smallest gain since September 2016.
    The data is yet another reason for the Fed to remain on
hold, said Jon Hill, interest rates strategist at BMO Capital
Markets in New York.
    The Fed raised rates four times in 2018.
    John Herrmann, rates strategist at MUFG Securities Americas,
said his bank's models suggested the Fed will hold rates through
the summer this year, followed by a shift to an easing monetary
policy stance at the U.S. central bank's September policy
meeting.      
    In afternoon trading, U.S. 10-year note yields fell to 2.601
percent, down from 2.641 percent late on Monday.
Earlier in the session yields hit a 10-week low. 
    The Treasury's auction on Tuesday saw a solid takedown of
the 10-year notes. The note was priced at 2.615 percent, lower
than the 2.623 percent at the bid deadline. Bids totaled nearly
$62.2 billion for a 2.59 cover, better than last month's 2.35,
and higher than the 2.49 average.
    U.S. 30-year bond yields were down at 2.987 percent
, from 3.032 percent on Monday, after earlier sliding
to a three-week trough.
    On the short end of the curve, U.S. 2-year yields slipped to
2.450 percent, compared with Monday's 2.477 percent.
    
      March 12 Tuesday 3:20 PM New York / 1920 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2.405        2.4535    -0.003
 Six-month bills               2.46         2.5257    -0.004
 Two-year note                 100-24/256   2.4505    -0.026
 Three-year note               99-232/256   2.4076    -0.036
 Five-year note                99-218/256   2.4068    -0.033
 Seven-year note               100-4/256    2.4975    -0.035
 10-year note                  100-52/256   2.6015    -0.039
 30-year bond                  100-52/256   2.9896    -0.042
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        11.50        -0.75    
 spread                                               
 U.S. 3-year dollar swap         9.25         0.25    
 spread                                               
 U.S. 5-year dollar swap         6.75        -0.50    
 spread                                               
 U.S. 10-year dollar swap        1.25        -0.50    
 spread                                               
 U.S. 30-year dollar swap      -20.25        -0.50    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Leslie
Adler)
  
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